The Choregus Guide to Office Space
February 22nd, 2008 | by Simon RattrayChoregus Guide to Commercial Office Space.
Here is the Choregus’ definitive guide to your office space options. Here at Choregus we focus heavily upon the serviced office industry, but today we publish a low down of all your office space options, helping you make the right decision.
In general the office will account for about 1/5th of your total costs as a business, which will be the largest chunk after salaries. This means it is imperative that you make the right decision about which office option you plump for - as it will impact heavily on the profitability if your business.
In general, you have three main options
1. Freehold
2. Rented / Leased offices
3. Serviced offices
1: Freehold
If you are a new business or an SME it may not always be possible to purchase a property, as it requires a high initial expenditure. You could apply for a commercial mortgage but you need approximately a quarter of the properties value as a deposit, which is not realistic for a new business. Of course there is no “dead” money as rent can be perceived as, but you are also susceptible to increases in the interest rates. Take for example the last three years for example, interest rates have gone up by around 2%, making a huge different in the monthly cost of a mortgage repayment, all of which your business would have to absorb. Not only that, you are also responsible for paying all of the other bills such as the legal costs, rates, insurance, repairs, security and cleaning etc.
That said, buying a property is an investment and means you have an asset. So if in the future you run into difficulties, you can raise additional revenue by sub letting part of your office space. But it cannot always be easy to find tenants quickly, which leaves you will the scenario of paying a mortgage on unused office space. But over a long peroid of time, particularily if there is a property boom as there was 2000 - 2004, you could make a tidy profit on your property should you decide to sell. You are also not exposed to rental increases by your landlord, for example some cities are experiencing office space shortages, such as Edinburgh and
Glasgow causing inflated rental costs each year. The problem is most acute in the prestigious areas of West
London such as Mayfair office space is highly saught after.
2: Leasing Office Space
Most UK commercial properties are rented or leased, with a typical lease being around 25 years. Breaks in the lease or a review of the rent can be arranged at periodic times throughout contract to allow for a changes in the market. For example if the market crashes (late 1980’s) or takes a serious hit (last six months) you can ensure that you are not stuck paying over the odds for your office space. Be careful as you will almost always be responible for your landlords legal fees.
Costs very according to the condition of the office, locations, lease type, and the overall health of the commercial property market. If you are a new business or an SME, you may not be able to choose grade A office space in prime city centre locations, which is why lots of small and emerging business are often located in more remote locations such as out of town business parks. It is always worth asking local commercial property agents what have been the actual rental costs agreed for city centre / prestigious areas as they are often less than what is being advertised. Competition is healthy and generally there is a good supply of office space, so always barter for as low a price as you can. Many office providers will give you a few months free, especially if you sign a 12 month lease.
Depending on the size of the office you rent and the location you may be asked to provide some sort of guarantee that you can meet the cost of renting office space. This could be a Bank Guarantee or a cash deposit. Rent is often collected in advance every quarter, but it is becoming more and more commonplace for office providers to bill you by the month. Be wary of late payments charges and eviction orders. Some rental reviews only allow for the rent to go upwards, meaning you could be stuck paying way over the odds should the market crash. You could also be left renting office space you dont need should you need to downsize.
There may also be extra charges that your business is liable for aside from the rental costs. Be wary of landlords that have the power to make their own calculations over these additonal charges. These could include cleaning, lighting , security, insurance repairs, and external maintenence. You should try and consider these costs when you are looking at a cost per square foot. It is expecially useful to factor these costs when making a comparision with serviced office space.
3: Serviced offices
Serviced offices are licensed rather than leased. A license is far more simple and will not involve you having to incur the legal costs associated with leased office space. Serviced offices main USP is there flexibility, you can move in and out fairly painlessly and at very short notice. You can rent by the week, day or even by the hour.
Another distinct advantage is that you only pay for the office space you use, including work areas plus reception, washrooms and kitchen areas. If you have a very small business and are on a limited budget you may get the opportunity to pay for the workstations only. You can usually downsize or upsize as and when you need to, meaning you dont have to move offices and change addresses.
In addition to serviced offices there is also business Centres where you get a manned reception team to meet your clients, handle calls and also include the use of meeting rooms. The office space will be furnished throughout and include all the latest technological gadgetry, which will allow your business to move in and get working straight away - highly convenient. Business Centres grew rapidly in the 1990’s are are ideal for new businesses and SME’s who are seeking a prestigious city centre address but cannot afford to or choose not to buy a property.
Multinationals and corporates enjoy the flexibility of business centres to assist them with a project team for example. Many of the large serviced office providers, namely Regus, brand their business centres. So if image is important to you, go for an unbranded serviced office. However, Regus offices are renowned for being good quality, so this may project a positive image of your company.
So there we have have it, a comprehensive guide to your workspace needs. Please note it is not possible to compare costs on a square foot basis between all three. A leased office will often look cheaper than a serviced office as it does not include all the other monthly bills. In any case a serviced office is often quoted on a workstation basis rather than per square foot.
Subscribe to Choregus