Are you guys single or married? Would it be possible to share an apartment? Productivity will definitely increase if you're around each other for 8-10 hours a day but $1000/month seems like a lot if you're trying to keep costs low.

Another possibility could be looking into office spaces and startup incubators that rent out small (and crappy) offices for new startups. The rent is super cheap and you usually get fast internet and access to conference rooms. This option depends on where you're located though, as not every city will have these.