Should I Invest in a Nice Office or Go "Low Rent"?

Q. My sister and I started our business making games at home. We develop the concepts and outsource the game making to our vendors. We have four employees and they all work out of their homes.

It’s getting harder and harder to manage things from our houses so we decided we want to get an office.

I see office space for rent for $5 per square foot all the way up to $25 per square foot. How much is the right amount to pay?

We do most of our business by phone so I don’t know if we need too nice of a space, but occasionally a buyer comes to town and wants to meet with us. We are concerned that if our space is "low rent," then they might not be willing to pay us as much.

I appreciate any help you can provide.

A. Dear Joan,

Your question is a fairly common one for many small business owners. The cost of office space is a variable that can have a big impact on a business’ bottom line, so it’s not surprising that it ranks near the top of the list of owners’ concerns. The key is to find a space that meets your business’ needs without breaking the bank. Location is important (especially for retail), but so are issues such as usability, cost and condition.

It sounds as though your business is at a stage where finding an office is not a luxury, but a necessity. Four employees working out of their homes is a communications disaster waiting to happen. Moving to a central location will most likely improve communication and create new energy in the business.

Now that you’ve made the decision to lease space, the next step is to assess your company’s needs. Since your business isn’t a retail operation, you are correct in saying that the space doesn’t need to be high-end to meet your needs. But at the same time, you don’t want the space to be so inexpensive that it is depressing for your employees and potential buyers.

One alternative might be to find less expensive space that can be transformed into an environment that stimulates creativity. As a game designer, creativity is your business. Subsequently, your space should work to enhance your creativity, not stifle it. A brightly-colored, less formal design might be just the space you’re looking for. It has the advantage of providing an inspiring space for employees as well as potential buyers who want to be inspired by your products.

If open and informal isn’t your thing, then consider moving into reasonably priced office space that can be broken up into different areas. Invest more resources in meeting rooms that will be used by potential buyers, and less in rooms that will be used by employees. As long as you don’t give them a tour, potential buyers will assume all of your rooms are as nice as the ones they are in, which they very well may become over time.

Whatever you decide, make sure you lease the best office space you can afford because environment counts. Studies have shown that employees who work in nicer office spaces are happier and more productive than employees who work in cheaper, less attractive spaces. Although you may save a few bucks in the short term, your company may ultimately suffer if you locate your business in a low-rent situation.