After working with several not-for-profit clients, SterlingCRE advisors recognized that nonprofit organizations (NPO) had unique hurdles in securing commercial space. At Gather: the Montana Nonprofit Association 2022 Annual Conference, SterlingCRE advisor Kara Hogan and Director of Marketing Sarah Knobel addressed a major question.
More than ever, NPO clients are asking: do we even need an office space?
Kara noted that nonprofit clients are seeing a rise in demand for their services – but finding that there is a huge amount of competition for space and that the available spaces are getting really expensive.
DO YOU NEED AN IN-PERSON OFFICE?
For some NPOs, the answer is yes. More old-school, traditional donors might prefer or even demand in-person meetings, and some things are just better face-to-face – like staff retreats and educational programs.
But for other groups, the answer isn’t so clear.
When addressing the office space question, the most important consideration for an NPO is who you serve, and how necessary in-person interactions are for your staff to be successful.
The SterlingCRE team noted that recent research has shown that requiring in-person interaction may actually limit participation. That’s especially true for groups who may lack the time, transportation, and childcare to access a physical office space.
The second key question is, where do you meet? Identifying where NPO staffers meet clients is crucial in considering office space needs. If a team is flying out to meet donors in their homes or at events, having a physical office space could be redundant.
We strongly recommend walking through the client journey with your board or leadership – does your office need something extra, like a childcare facility, that could be built into a new lease?
Or, is that client journey one that could be managed on a call? (Don’t forget to think through internal clients, too, as often internal operations staff can just as easily perform their duties from the comfort of their own homes.) In those cases, you can offer work from home for certain positions if that’s a mutually beneficial arrangement, which helps to decrease the square footage you pay for.
MONTANA TRENDS IN REMOTE WORK
Kara noted that the SterlingCRE team keeps close track of what the research says about office leasing trends, as a big part of our job is leasing and selling traditional office space.
The audience was polled, asking what they thought the future of Montana remote work might look like. Most of the attendees agreed that the number of remote workers was likely to continue to rise in Montana.
And while, in Montana, a lot of people are back in the office, a lot of people never really left the office, and we’re even seeing many companies look to expand their footprint as their business grows. But as lease rates and other building expenses rise across the state, there are some shifts in the office sector.
Nationally, office space per employee is the lowest it’s been in 22 years. And this isn’t just due to the pandemic. The amount of square feet per employee has steadily declined since 2009. While that’s thanks to technological advances, but was no doubt sped along by COVID.
That’s the national data, and even as Montana slowly moves into the new working world, state-level research is telling a similar story. Bryce Ward, a Montana economist, noted that the number of people working from home in Montana doubled between 2019 – 2021 and tripled in Missoula, Helena, and Billings.
Some of that might be due to jobs that are held out of state being brought in by new residents, but that’s not the whole picture. So, that’s what the data is telling us: there is a ramp-up toward working remotely.
And, with major staff shortages starting to hamstring economic growth across Montana and the rest of the nation, employers are recognizing that offering remote or hybrid work is critical to reducing employee turnover.
While the state and national trend data is interesting, we’ve noticed that another set of data looms large for NPOs: cost.
WHAT ABOUT THE COST?
The cost to maintain an office in Montana is increased rapidly over the past few years. While there are some deals left across the state (and some NPOs find success in co-officing with other groups), most cities saw steady gains in office rents.
Lease rates in Missoula move up to an average of $15.22 plus triple net expenses. In Bozeman, that number jumps up quite a bit to an average of $18.76 plus NNN. We’ve even seen some offices coming in at the $30 per square foot range, plus NNN, which means some of these spaces are running nearly $40 per square foot.
Nonprofits are likely to be competing with companies that have substantial budgets in larger markets like Bozeman, Missoula, Kalispell, or Billings. It’s important to prime the board and/or leadership that prices are on the rise.
ALTERNATIVES TO TRADITIONAL OFFICE SPACE
After covering the data – how many people are going remote and what it might cost to get them back into an office – Kara and Sarah explored some of the solutions the SterlingCRE team sees companies taking up.
For nonprofit organizations, there are some optics to consider that other business types don’t always have to worry about – SterlingCRE heard from some NPOs that a nice office is out not only because it’s too pricey, but because it could be alienating to clients and/or a turnoff for donors.
Some options are especially cost-effective and can read as less flashy than new, updated office space if that’s something your organization is concerned about. Those options include coworking, private executive suites, and residential-turned-office space, all of which we are seeing come up more and more frequently across the state.
Coworking offices can be great, but we see longer waitlists at the more well-known spaces like Regus and C3. What we suggest is looking at the local brands, like The Madison in Bozeman or The Sidecar in Helena.
COWORKING PROS AND CONS
Pros: Coworking is great because you generally sign on for a weekly or monthly office space. Another pro is that your team has a place to land and collaborate without signing a long lease, and the team can also generally get the benefit of having a full-service lease that doesn’t get into the inclusion of taxes, utilities, and other expenses.
One downside of coworking is that you won’t always have a quiet, consistent space to meet with clients, donors, or stakeholders about sensitive issues. There could be other coworking users in and out, which can be beneficial for community visibility but negative if you need some dedicated quiet space for your work.
These coworking spaces usually come furnished, so it helps bridge the gap between a home office and outfitting an entire commercial space.
Another issue we’ve run into with coworking is that the internet or WiFi you get is pretty standard, which means the service usually doesn’t meet HIPAA guidelines. That can be a challenge if you are healthcare-related or adjacent and need to have an extra layer of protection for client data.
Coworking spaces make it more difficult to bring in extra monitors or specialized technology, which is an important factor for some staff. But, overall, coworking is an excellent interim solution to the question of officing folks on smaller teams that are considering a move back into an office.
We asked the MNA audience: do you think you could work in a coworking space?
PRIVATE EXECUTIVE/FLEX SUITES
Another option for getting an NPO back into an office setting is private executive or flex suites. These are similar, in that you are renting private office space in an existing building. These spaces have the same kind of issues with shared space that we see in coworking, but generally, these leases are for longer than coworking – six months to a year or more.
For that reason, there is less turnover in your co-tenants and a little bit more consistency in the conditions – noise, visitors, etc – of the shared space. These spaces can be full service but often include those Common Area charges. And, the one challenge is finding a space like this in Montana. They exist, but you usually have to seek them out in the specific city where you are looking.
Finally, Sarah noted a rise in residential buildings converted to offices. Because these converted buildings are sometimes in more residential areas, they can be viewed as a tier-two option for some tenants.
But, for that same reason, these spaces can be more cost-effective. An option like this likely requires some ADA upgrades, but the SterlingCRE team has seen more and more of these types of spaces getting picked up by groups, including nonprofits. Not only are these spaces less expensive, but most of these residential spaces are off the beaten path – which helps keep costs down as well.
However, parking in a residential area can be trickier, as can demising a house into a working office space. And, if you’re looking for a short-term solution, this probably isn’t it. For organizations that don’t want to share an office building, these residential-turned-offices are some of the best options to do so.
Even as more folks do move to a work-from-home model, the increase in companies expanding in Montana has put more pressure on the office sector. There is a lot more office product coming online, but that space can be pricey, which can, in turn, fuel the fire in the conversation about what overhead is appropriate.
NPOs are more liable to have this conversation than almost any other kind of business, simply because optics play a bigger role when it comes to the perception of stewardship of funds. But, in a lot of outdated spaces, there is also higher staff dissatisfaction, which can cause turnover.
One way to balance those things is by seeking out buildings with deferred maintenance on the exterior. These buildings won’t have the same curb appeal as a flashier building, and you may have more leeway in negotiating TI improvements. Basically, you can find a building that may need more exterior maintenance and then focus your efforts on creating an excellent interior experience for staff and clients.
Sarah and Kara covered the research telling us that both nationally and statewide, remote work is only gaining momentum – so it may be time to reassess in-person office needs. There’s way more competition in the market for space, and the available office space is getting more and more expensive.
While we still see some deals in the market, it’s more common to see prices rising for almost every major city in Montana – and even some smaller cities that used to be priced more reasonably.