This type of business as sublease can be quite profitable, given the high demand for class A office premises. But experts advise considering it more as an additional source of income than as the main business.
By itself, subleasing is unlikely to become a profitable business. But if you combine it with additional services for tenants and retake their premises in small blocks, you get an additional source of profit.
Sublease - as entrepreneurship is not typical for high-class buildings. Companies renting offices of this level value their image too much to actively sublease. They lease the premises they rent out only in those cases when the office was rented by them for the prospect of expanding the organization and some of the space is not yet needed.
Another option is possible for subleasing, when large areas are knowingly rented, and surpluses are leased to the partner organization, together with which the tenant conducts business. But this also cannot be called a business ...
Today, the first signs of a civilized business built on sublease appeared on the Moscow market: the so-called multifunctional office centers of Regus, Millennium House, Daev Plaza, M-style Office, which are rented out in small pieces with additional services. Their distinctive features are: location and proximity to the business center, compliance with international standards, the provision of an additional range of services, such as information and communication services, the possibility of using specially equipped rooms for seminars, conferences, meetings, the possibility of renting for a short period (from several months).
The peculiarity of the business of these companies is that the tenant takes not square meters, as is customary in the market, but workplaces (rooms). The cost of services depends on their range, rental conditions, area. But, according to some reports, an average of 1 square. m square costs 1, 500 dollars. For comparison, in class A business centers, the rental rate rarely surpasses $ 800 per meter. The double price difference makes this business very profitable.
Sublease: The essence of business
The business scheme is simple: the company rents large areas (expediently - from 1, 000 sq. M) in the business center, splits the existing space into small blocks, organizes a reception, creates the appropriate infrastructure, hires staff, repairs and finishes the office space, gives advertising and then waiting for tenants.
In modern business centers, the average floor area is from 700 to 100 square meters. m. Therefore, it is worth starting with the removal of the whole floor, having arranged a separate reception there and dividing the rest of the space into office blocks.
In the launch of such a business at 2, 000 meters, you will need to invest about 650-850 thousand dollars. Of these, renting space (usually prepaid for two to three months) will take 240-300 thousand dollars. Another 350-400 thousand dollars will be needed for the repair of the room and its small-scale conversion, furniture - 40-50 thousand dollars, purchase of security equipment - another 20-30 thousand dollars, installation of telecommunication equipment - 5-10 thousand dollars (provided that there is optical fiber in the room or the operator conducts it at his own expense). Some funds will be spent on advertising in specialized publications and the Internet. On average, the margin on the rental rate in multifunctional business centers is from 40 to 80% compared to similar premises without additional services. Thus, rental income will be 130-150 thousand dollars a month. Consequently, all initial costs, ideally, will be paid back within three to four months, and then the entrepreneur will have to make only rent payments, bear operating costs
odes and earn income.
Start-up costs can be minimized by starting work in the class C segment. In this case, you simply retake the offices, making some improvements in them. But on the other hand, in class C there is no acute shortage of small offices on the market: various research institutes, administrative and factory premises fill the market with a direct rental offer.
Sublease: Business Challenges
But this business seems simple only at first glance. Here there are difficulties and pitfalls. Firstly, management companies are faced with the same problems as ordinary tenants, delays in rental payments, violations of the rules for the common use of premises, and under-loading of premises.
Secondly, it is not easy to obtain a landlord’s consent to lease premises. The main landlord will ensure that dubious companies do not appear in his building and actively intervene in the selection of sub-tenants, insisting that they must comply with the “image” of the entire property.
Thirdly, to provide tenants with additional services, a staff of qualified specialists will be required. Providing the maximum range of services entails high costs. At the same time, costs, of course, are included in the rental price, which leads to its cost increase. Such services are demanded by subtenants only in the upper segments of the market, and in the lower price segment of class B and C offices, no additional services
Thus, a subleased business can exist only as an addition to a more profitable business.
What should be done when starting a business with “profitable real estate”:
• Develop the most effective layout of rooms with convenient common areas.
• Make good repairs using wear-resistant materials.
• Make the entrance to the business center convenient, preferably from the street.
• Be sure to make two or three equipped meeting rooms.
• Install an automatic access control system.
• Organize or attract a good security company that can solve conflict situations.
• Engage a reliable and affordable telecommunications provider.
• Put a modern (with the function of automatically holding a call) telephone exchange.
• Arrange a good front desk service.
• Hire an adequate manager.
Volume of investments (per 2, 000 sq. M) - $ 650, 000–850, 000:
• office rental - $ 240, 000-300, 000.
• repair and preparation of the office for receiving clients: $ 350, 000–400, 000.
• furniture - $ 40, 000–50, 000.
• purchase of security equipment - $ 20, 000–30, 000.
• installation of telecommunication equipment - $ 5, 000–10, 000.
Leased area: from 1, 000 to 10, 000 sq. M. m
Permissions: the consent of the owner to lease the premises, the availability of this clause in the main lease.
Payback period: from three to four months to a year.
Rental rate: from $ 1, 500 to $ 2, 200 in high-quality business centers, and up to $ 700-800 in less prestigious buildings.
Profit rate: 10–20% in the case of a simple re-lease of premises in class C and up to 50% in the case of the provision of additional services, and even in the upper segment of the market.
Tenants: representative offices of large international companies issuing pilot projects, small dynamically developing enterprises, medium and partly small businesses; all companies that need a small office area of up to 200 meters.
Means of promotion: Internet, specialized sites and specialized publications.
Based on an article by Anton Belykh for the magazine Business Journal
* The article is more than 8 years old. May contain outdated data