Sub-leases popular with start-up businesses

Tim Rainey (left) checked with Campbell Pritchard before taking on a lease. Photo / Supplied

Sub-leasing office space is becoming an increasingly popular stepping stone for small businesses starting out, says Campbell Pritchard, leasing broker for CB Richard Ellis who has recently moved a new law practise from a sub-lease to a head lease at the Vero Centre on Shortland St.

"The initial sub-lease of 115sq m for Rainey Law, a one-man-and-PA law practice when it started out last year, enabled the firm to get an address at one of Auckland's premium buildings in the heart of the legal precinct without taking on the responsibility of a longer-term head lease," says Pritchard.

"By taking fully fitted-out sub-leased space, Rainey Law used it as a stepping stone and a chance to build a relationship with landlord Kiwi Income Property Trust."

It took less than six months for Tim Rainey's law firm to outgrow the sub-leased space and move to the head lease over 325sq m in the Auckland CBD office tower.

"We went from two to four staff in as many months and needed bigger premises," says Rainey.

He formed Rainey Law after leaving Grimshaw & Co where he was a partner. The firm specialised in commercial litigation, particularly leaky buildings. "We decided to go our separate ways last year and I launched my own practice and moved into level 34 at the Vero Centre."

Rainey says he was immediately attracted to the building because of its services, its proximity to other law firms and the High Court and its acknowledgment as one of the city's iconic properties.

"I was surprised the practice grew so quickly in the middle of the recession, but in some respects it was quite good to start a new business in the middle of a global financial meltdown."

Work came in fast for Rainey Law, which has strong client support and is well regarded in the litigation arena. "We needed more space rapidly. Our only meeting room became an office and we couldn't carry on. We only stayed nine months in our sub-leased office."

Pritchard says having a sub-lease combined with the availability of other space in Vero Centre gave Rainey Law the flexibility to deal with its unexpected growth in the first year."

Rainey says he wasn't an expert in commercial property, so he called on Pritchard again to make sure he was making the right decisions. "We looked at a number of properties to check the lease we were taking on wasn't crazy and in line with deals in the market."

The firm moved into space that had previously been occupied by another law firm, which has also moved to bigger premises in Vero Centre. Pritchard says six offices, two meeting rooms and a storage area were built into the previously predominantly open-plan fit out.

Rainey says the building is so well designed, each office has a corner aspect, which is usually the sought-after area in any skyscraper. "The offices have a pleasant view over the city and plenty of natural light."

Rainey Law has signed a new long-term lease with Kiwi Income Property Trust (KIPT). "KIPT has been flexible and good to deal with," says Rainey. "They were forward-thinking enough to shuffle the cards to get the most out of their existing tenants and meet their needs."

Pritchard says sub-leasing is on the rise as a way of moving into fitted-out premises on a short-term lease and establishing a presence in some of the city's better buildings.

"It can be daunting for a newly established business to take on a direct lease, with usually a minimum term of six years. Under a sub-lease the tenant gets all the benefits of a top building, without the burden of being tied into a long-term lease.

"If a good relationship is established with a landlord, they are usually more than happy to accommodate the tenant's requirements if their business expands."

Pritchard says sub-leasing has a twofold effect. "For businesses with too much space, rent is a major overhead. With a slowed economy and tighter margins, sub-leasing unused office space can be an effective way to cut costs. And for businesses starting out, sub-leasing is a stepping stone during a dynamic phase of their growth."

KIPT has several areas for lease in the 39-level Vero Centre from full floors of 1200sq m to 115sq m, 300sq m and 600sq m. Pritchard says KIPT will work with companies to provide a sustainable fit-out.

The building has a roll of some of New Zealand's biggest blue-chip tenants, including top law firms Belly Gully and Russell McVeagh, Goldman Sachs, JB Were and Craigs Investments Partners.