A question that often crops up with clients looking for office space is, should they choose a serviced office or a leased office? There are pros and cons to each, but more crucially they are very different offerings and are suited for different types of business, depending on size, stage in growth and future plans.
A leased building is a much more stable arrangement with regards to contract length and longevity. The space will be rented from a landlord or building owner and as the tenant you are essentially left to your own devices. The stability element works both ways; the upside is that you have security for a specific period of time without the risk of being moved around, but it does means that there isn’t always room for movement should you need to take more space or downsize during the lease period.
A leased option is good choice for larger companies who have a long term plan with consistent income and/or who want to have a level of exclusivity and privacy within the premises. A leased office gives companies carte blanche over the layout, style and decor of the space but this will need to be taken care of by the tenant themselves – though most agents will have contacts with reliable fit out companies they can recommend.
Leased offices are more self sufficient in terms of the day to day running and usually require a member of staff to manage the upkeep, utilities and organising of sundries. This may already be accounted for or a business may have to add in extra staff into their budget if it is their first move into a leased building.
An important part of any office search is cost, which differs between leased and flexible space. Longer leases are often less expensive overall, but much more labour intensive from start to finish than a serviced office. If you are trying to compare the two it is important to note that a serviced offering will generally be all inclusive, whereas a leased option is separated into rent, rates, utilities, stamp duty and legal fees.
The serviced office market is generally, but not always, better for small to medium businesses and companies that are uncertain in their growth plan and could change size quickly. The flexibility you get with a serviced office is second to none as you are able to upgrade to a bigger space if needs be and if you have to downsize then the contract you are in won’t be as long as a lease so is less daunting if the worst happens.
There is a premium with regards to the cost of a serviced office but this is for convenience. The offices in a flexible market are pretty much a full package with IT and furnishings included so that a business is ready to go from the day they move in. You are also paying for flexibility – some contracts are as short as three months to allow for changes in circumstance and a test period. Serviced space also gives you room to change your mind by having such a short contract so that if you decide you no longer need an office, you have the ability to exit with little drama and no real admin.
The downside to all this convenience is that the flexibility has to work for both parties. Therefore, most serviced offices are rented out on a license agreement which often states that the landlord can relocate a client in the building if needs be. Whilst this isn’t’ a regular occurrence or a decision that is ever taken lightly, there is a risk that you will be asked to move around the building at short notice to accommodate other clients or situations.
Additionally, as the length of contract is much less than a leased space there is no guarantee on the future rental cost, so it is always worth having a discussion with the office provider early on what the proposed yearly increase will be. If there was a dramatic discount applied for the first year, don’t forget what the original price was as that is where the renewal will need to be near after the initial deal.
- Leased is a longer term, stable option for larger businesses
- Leased options are less flexible than serviced options
- Leased offices are open for design carte blanche and personalisation
- Leased offices are usually less expensive but more labour intensive in regards to the search, finalising the contract and maintaining
- Serviced offices are a ready to go solution
- Serviced offices have flexibility for upgrading and shorter contracts if a downsize is required
- Serviced offices can stipulate a client move mid-contract if the building has a need for them to do so