The startup ecosystem in Columbus is demanding national attention from entrepreneurs, investors, and professionals everywhere. Why?
Columbus is 40% less expensive than Chicago and 60% less expensive than New York, according to Venture Ohio. What’s more, Central Ohio startups are growing at an unusually quick pace. Earlier this year, the Kauffman Foundation discovered that, “More new businesses in Columbus grow to employ 50 or more people in their first 10 years than any major metropolitan area in the United States.”
It’s no wonder that Ohio’s capital city ranked 24th on the number of cities invested in during 2015, beating out Cincinnati, Cleveland and Indianapolis. Columbus also had the ninth highest metropolitan statistical area (MSA) year-over-year percent change in the number of companies receiving venture capital funding in 2015. A leading example of the city’s success is Drive Capital. The local private investment firm raised roughly $454MM in funding since inception in 2013, with a focus on financing and building Midwest startups.
It’s clear that Columbus startups are eclipsing other more traditional markets, and consequently, we’re seeing a major shift in local real estate operations. A number of corporate spin-offs are also taking advantage of the city’s startup ecosystem, including Fuse by Cardinal Health and the Office of Technology Commercialization by Nationwide Children’s Hospital.
The increase in startups and young entrepreneurs is backed by full community support, with the addition of Columbus Startup Week each May. The event brings companies and entrepreneurs together for mentoring session, panels and more to discuss new opportunities.
Read on for more insight on startups to watch in Columbus, plus trends and strategy in startup real estate.
It’s All About Location: Startups to Watch
Owners are launching businesses in Columbus submarkets, from the Arena District to Westerville to Worthington. The influx of millennials in the current workforce has led to an accelerated shift toward urbanization. Submarkets within walking distance of amenities and lively atmospheres attract these developing startups, namely Grandview, Capitol Square, Short North and the Brewery District.
Columbus submarket locations enable companies to widen their talent pool—attracting some of the brightest young professionals out of local institutions, including Ohio State University. Plus, positions are in high demand for those seeking the perks of a city atmosphere with a lower cost of living.
The technology industry has also taken a liking to inland locations, especially in Central Ohio with its lower-cost properties complete with the perks of walkable, urban submarkets. Specifically, a number of highly scalable Healthcare IT (HIT) companies have set up locations in and around the CBD, including CrossChx, Aver Informatics and CoverMyMeds. And an ever growing number of startups forming in Advanced Manufacturing, Information Technology, Financial Technology and Financial Services.
While more traditional enterprises seek suburban office parks, incoming startups require a central location that allows them to be in the heart of a city’s culture. And when it comes to actual workspace, startups are leaning toward open, mixed-use environments that they can creatively brand with their own company message, while also allowing them flexibility for employee work styles.
A New Approach to Startup Real Estate
Forget long-term leases; the traditional approach won’t work for startups.
Because they can’t afford to avoid their business, building owners and their representatives have been pushed to reimagine their approach to leasing office space that meets startup demand. With the increase in demand of startups taking on real estate, it is important that both ownerships and startups understand one-another’s position – weighing opportunity and risk. When representing a startup with only a few years of existence and a unique financial position, our goal is to present opportunities and solutions that minimize both the startup and landlord’s risk when taking on office space.
For the most part, startups that just received a Seed round or Series A and are still trying to determine growth projections are not in a position to take on a project that calls for heavy build-out of their space, or one that is going to tie them into a long-term lease. Instead, brokers should recommend a “half-step” process to their clients: Find an option that satisfies their core office needs, but does not need much, if any, modifications or build-out. This process minimizes the landlord’s upfront investment and focuses on what the startup’s upside potential may bring.
“The startup community may be a bit of an enigma to many CRE brokers, but there’s a lot of upside potential: repeat business as companies grow, a community for referrals and the competitive edge that comes from gaining expertise in an underserved sector.” – Forbes
Once a startup is positioned with strong financials and understands its growth projections, then brokers can more confidently guide the startup through an office relocation or remodel to reflect company culture, look and desired layout.
Startups Gravitate to Co-Working Office Space
Enter the co-working revolution, an office concept that champions flexibility and creative autonomy. With more than 27 million square feet of space belonging to U.S. co-workers, these office spaces are gaining popularity among startups and entrepreneurs looking to kick off their business.
The major caveat that comes along with this office trend is the price tag. Data shows that a sampling of shared office space in popular U.S. markets reaches a price of $139 per square foot, compared to a Class A CBD rental rate of $49.59.
That said, many of these spaces offer convenient amenities, such as furniture and supplies, food and beverages, and networking opportunities with people from various industries in a collaborative environment. The biggest selling point, however, is the flexibility of leases that co-working space offers that most traditional space does not.
Shared workspaces are gaining momentum in Columbus, with many startups and entrepreneurs leasing space in key co-working communities, including The Perch, Industrious, Office Evolution and The Salt Mines.
With the recent increase in startups entering Columbus submarkets, brokers and landlords will need to make the necessary adjustments in their leasing packages to retain these businesses as they continue to grow. Similarly, startups also have plenty of factors to consider when leasing a space in Central Ohio, including whether or not to take advantage of a co-working office, or grow their company in their own, independent office.
Andy Effler specializes in Tenant Representation with JLL in Central Ohio. His career and reputation relies on educating and advising his clients to enter into real estate transactions (leasing or purchasing) that best position their company for success. His market knowledge, strategic advisory and negotiating skills permit him to effectively implement client goals and objectives while maximizing leverage and minimizing their impact and exposure to occupancy costs and risks. Andy has a passion for advocating and working with startups / entrepreneurs and has spent his career in real estate building relationships and representing various companies within the Columbus startup ecosystem. Get in touch with Andy: email@example.com.
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