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Commercial real estate evolves in startup culture

5/6/2016 | Real Estate Blog

Philadelphia new business owners as well as commercial property landlords are both operating in a culture of change. For decades, commercial real estate leasing was governed by a combination of written laws and regulations as well as customary business practices. During the last decade, changes in how businesses operate have caused major disruptions in the commercial real estate industry.

One of the major changes in the modern business climate is the increasing number of tech startups that are often being run on a shoestring budget. Once a new business outgrows a dorm room, basement, or bedroom, its owners will be seeking commercial space. Yet unlike established businesses, these startups have specific requirements that may not fit into the established paradigm of many commercial landlords.

Requirements will vary from startup to startup, but one common issue will be that of lease length. Since these businesses don’t have a lot of capital, and may have only been in existence for a few months, owners are not going to want to sign a multi-year lease. While this can be perceived as a risk by landlords, startup owners are simply being realistic and would prefer to avoid a court battle.

Another consideration is that many startups are able to operate in nontraditional spaces and properties. E-commerce is booming, so many businesses don’t need a storefront, an area with lots of foot traffic or a lobby. Space that might have once been considered only appropriate for industrial usage or storage may now be considered the “perfect” office for a fledgling tech company.

New business owners may benefit from consulting with an experienced commercial real estate attorney. Lease agreements often contain pitfalls for the unwary, and thus a review by legal counsel prior to signing could be advisable.