Office Ownership Models
Have your workspace needs changed significantly in recent months or years? Are most of your staff working from home, so you’re considering moving into a co-working space? Perhaps you’ve grown significantly, and are thinking about leasing your own office? Whatever your situation, you’re likely wondering which is the best office ownership model for you.
Every week, we speak to companies about their workspace strategies. Given the amount of change in recent years, many are reconsidering their office ownership model. However, they’re unsure which is best for them and how to make that decision. In this article, we’ll go through the options, explaining each one, with their respective advantages and disadvantages. By the end, you’ll know all about each option, and you’ll be able to decide which option is best for you.
What are Coworking Spaces?
Coworking spaces are large communal offices shared by multiple different companies. Individuals and companies can hire private offices, company offices, or shared desks on a per-person basis. A relatively new workspace model, coworking has risen in popularity over the last 20 years.
Coworking has traditionally been aimed at start-up companies. They value the ability to grow easily and network with similar companies. However, the pandemic has made coworking spaces much more attractive to more traditional companies. This is because it provides much more flexibility in a time of uncertainty.
Coworking Spaces Advantages
The major advantage of coworking is the flexibility that it offers. Few co-working spaces require you to commit to a long-term contract. Instead, you can use flexible pay-as-you-go terms, often on a rolling monthly or quarterly contract.
For small companies, coworking can also be more cost-effective. Unlike lease or freehold, there is no capital office fit out cost to prepare the space before you move in. This means that for small spaces or short-term use, the higher monthly cost is actually cheaper in real terms than leasing.
Coworking Spaces Disadvantages
Due to their open-plan designs and communal nature, coworking spaces have poor privacy. This may be problematic if you are dealing with confidential or proprietary information. The layout of a coworking space is also largely fixed, and you probably won’t be able to adapt it.
Another disadvantage of coworking spaces is that you can’t brand your office. Workspace can have a big impact on your culture, and a branded space that brings your company’s personality to life is a big part of that. In a coworking space, the design is often generic to suit multiple different brands, making it less appropriate for yours.
What Are Serviced Office Spaces?
Serviced Offices are small private offices that share common facilities like breakout spaces and receptions with other offices in the same building. They are managed by a serviced office provider, who owns the whole building, renting smaller offices out to other companies. Most serviced offices house 2-20 people, and provide a company with its own private space.
Serviced office space is a much older workspace model, that has been around since the mid-20th century. First known as barrister’s chambers, they are now common for small professional services firms, especially in large cities.
Serviced Office Advantages
The biggest benefit of serviced offices is their convenience. The space is already fitted out, so you can move straight in. Rental agreements are much simpler than leases, so they are also a lot quicker to arrange. There is one monthly payment to make, and it covers a whole host of services that you don’t get with co-working, such as IT support.
Another advantage is the flexibility compared to lease or freehold office space. Serviced offices typically operate on a quarterly or annual rental basis. Many serviced office providers will also allow you to make adaptations to the space. These includ installing signage or adding/ removing executive offices.
Serviced Office Disadvantages
While more flexible than a coworking space, you still have a limited degree of customisation compared to lease or freehold workspace. You will not have any control over the design or layout of the common areas, such as the breakout space.
Serviced office space can also become very expensive over the long-term. Serviced offices are 50-80% more expensive per square foot per year than leased office space. Over time, the fixed costs involved in setting up a leased office become more cost-effective.
What are Leased Office Spaces?
Leasing is by far the most popular option for office space in the UK. Leasing involves renting directly from the building landlord on a per square foot, per year basis. Leases are normally held on a self-contained space, such as an entire floor of a building. The leased space is only used by your company, and you have almost complete freedom to design & build your workspace as you wish.
Leasing usually requires you to sign a contract of three to ten years. The lease cannot be broken by either you or the landlord without the other’s consent. Generally, there are 1 or 2 pre-agreed points in the lease when either or both parties can terminate the lease without penalty.
Lease Office Advantages
Leasing allows you a lot more control over the design and branding of your space than coworking or serviced offices. This means you can design and build the space to meet your specific needs. Leasing is also very cost-effective over time. As you deal with the running costs yourself rather than paying your shared office provider to manage it for you, this is significantly cheaper.
The longer-term nature of leasing office space also provides a lot more certainty than shared office space. Leases typically last 3-10 years, and often require at least 12 months’ notice of termination. This means you can invest in your current space, knowing you will be there for years to come.
Leased Office Disadvantages
Despite the relatively low ongoing costs, leasing your new workspace will involve several upfront costs. Many leases require a deposit of 6-12 months. In addition, there will be the cost to fit out your new office space, which can cost £40 to £85 per square foot.
Leases can also be a lot more complex and time-consuming to negotiate. They require expert legal assistance and extensive negotiation to get the best possible terms. When leasing your office space, you also have to manage a lot more of the daily operations than in a shared office. You’re responsible for all of the utilities, cleaning, maintenance, and more.
What are Freehold Office Spaces?
The least common of the 4 main ways to operate your office, freehold involves owning the building outright. As the exclusive owner of your office, it is your asset and you can choose if and/ or when to sell it and move out at your own discretion.
Freeholds are rare in urban areas due to very high property costs. They are rarely suitable for new or growing companies. This is because they require significant capital investment that could be used to fund growth.
Freehold Office Advantages
The most significant advantage of owning your office outright is that it becomes an appreciating asset, rather than an expense. Property prices consistently increase in the UK, and London rates have increased 181% in the last 5 years. Another advantage is the lack of monthly payments required for your workspace once it has been purchased. In fact, spread over 15 or 25 years, the monthly cost of owning your property is equivalent to renting.
Unlike leasing, owning a property freehold gives you complete control over the space. This means you don't have to get landlord approval to make alterations to your office.
Freehold Office Disadvantages
Unsurprisingly, the major disadvantage of freehold office space is the upfront cost. Commercial space in London will cost £70-£135 per sq/ft per year, to lease. To purchase equivalent space would cost £1,000-£2,500 per square foot. For many companies, such capital is better invested in business growth.
While freehold means you can decide to move whenever you want, it doesn’t mean you can move whenever you want. Unlike a lease, where you can move out at a pre-agreed point and leave the office unoccupied with extra costs, you would have to sell one office before moving to another.
Which Is Best For Me?
Now that you know about all the office usage options, along with their benefits and drawbacks, it’s time to decide which is best for you. None of the options is the absolute best – the best option will depend on many different factors. The most important ones are size space, future growth, budget, and stability.
For most companies, leasing is the best option. It provides the amount of office space they need, at a cost-effective price, whilst still having enough flexibility to reduce risk. If your company is small, then you are best to look at coworking or serviced office space, as you won’t be able to justify the long-term commitment and high-fixed cost of leasing or ownership. If your company is established in a stable industry, then buying your office could be a good way to build equity and increase your asset base. We recommend you work with an experienced real estate consultant to make the right decision for you.
Once you’ve made your decision, you may well need to move office. However, there is a lot more to moving your office than packing and unpacking boxes (if only it was that easy!). Successful office relocation requires months of careful planning, searching, designing, and building before you can finally move into your new office. We’ve created one comprehensive guide that will help you understand everything that goes into an office relocation, what it costs, and how long it will take. Download your Ultimate Office Relocation Guide here.
If you’re reconsidering your office ownership model, then you’re likely thinking about your entire workspace strategy. However, in times of such turbulence, establishing a workspace strategy can feel almost impossible. To help you create a workspace strategy ready for your future, read 5 Factors to Future Proof Your Workspace Strategy.