BAM Key Details:
- New data from Kruze Consulting shows the percentage of startups renting office space in 2023 has returned to pre-pandemic levels, but rental costs now represent a smaller percentage of startup expenses.
- The cost of renting office space has declined from 7% of total startup expenses to about 3% as remote work and hybrid work schedules shrink the footprint of those spaces.
The percentage of startups renting office space, after taking a dive in 2021, has returned to pre-pandemic levels as more return to the office. That’s according to new data from Kruze Consulting, a leading CPA and finance consulting firm for venture capital-backed startups.
There’s a catch, though. While more startups are returning to the office, the size of their office space has declined—and with it the amount of expenses represented by rental costs.
In early 2020, rental costs represented 7% of total startup expenses. Now it’s around 3%.
Here’s what you need to know.
More office spaces, smaller footprint
At the beginning of 2020, roughly 65% of startups across the U.S. were renting office space. Skip to January 2021, and that percentage dropped to 36%. Since then, that figure has rebounded to 59%, as of December 2022.
That said, the cost of renting office space as a percentage of total startup expenses has contracted over that same amount of time. In early 2020, that figure was consistently about 7%, even in high-rent markets like New York.
Then the pandemic happened, and throughout the worst of it, rent percentages consistently declined as more startups chose a remote working model.
By the end of 2022, rental costs represented only about 3% of overall startup expenses.
While the decline in the real estate market is certainly a factor, it’s also evident that many startups have chosen remote working or hybrid working models, even in late 2022. And these models don’t require as much space as a fully in-office model. Less square footage generally means a smaller rent payment.
All the data and analysis behind these figures is available on the Kruze Consulting blog.
We’ve seen startups beginning to rent office space gradually since January of last year and over the last 12 months the number of startups paying rent has nearly returned to the levels we observed before the pandemic. What’s interesting is that the amount they are paying for rent has continued to decline steadily over the last 2 years, which confirms the anecdotal evidence I’ve been seeing – that startups don’t need as much office space as they did before.
The steady increase in the number of startups (and other businesses) transitioning from fully remote to hybrid working models is evidence that the brick-and-mortar office is here to stay. But the way many people engage with their offices has changed.
So, while startups will likely continue to rent office space, more of them are choosing smaller spaces than before—and paying less for it.
Read the full article to learn more.
About Kruze Consulting
Kruze Consulting offers Startup CFO Consulting to more than 750 startups in major startup hubs including Silicon Valley, Los Angeles, and New York.
Kruze’s clients include market-leading SaaS, software, eCommerce, eHealth, and FinTech startups and, to date, have raised more than $12 billion in venture capital.
Founded in 2012 by Vanessa Kruze—Big Four alum, startup controller, and CPA—Kruze Consulting handles all things accounting, tax, finance, and HR.
Top takeaways for real estate agents
If you’re in the commercial real estate space, this data is worth considering when clients are searching for office spaces that meet the needs of their business tenants.
Startups looking for a physical hub for their employees to work in, at least part-time, may be looking for smaller spaces now than they would have before the pandemic. Real estate investors need to consider that when preparing those spaces for renters—depending on the types of businesses they want to attract.