Office Rental Options
If you've outgrown your current serviced office, you're likely wondering whether you should move into a larger serviced space or your own leased office. Perhaps your current lease is expiring, and you're wondering whether to go into serviced space or keep leasing. Whatever your situation, you want to know whether serviced or leased office space is best.
Real estate is the second biggest overhead for most firms, second only to staffing. This means choosing leased or serviced office space will have major cost and risk implications for your company.
Every week, we speak to companies researching or planning an office move. The topic of whether to move to serviced or leased space is a common one. Our recommendation varies based on their size, growth plans, budget, and current office.
However, in this article, we'll share with you the key advantages and disadvantages of each option, as well as some key factors to consider. By the end of this article, you'll know how to make the right decision for your company.
Leased Office
What is Leased Office Space?
An office lease is a long-term contract (normally 3-10 years) to rent an office on a per sq/ft, 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. A lease usually lasts for three to ten years.
Leased Office Advantages
The main advantage of leasing office space is its cost-effectiveness over time. While the upfront costs are higher, you deal with much more of the maintenance and space management yourself. This means the operating costs are significantly lower over time.
Leasing also allows you a lot more control over the design and branding of your space than serviced offices. This means you can design and build the space to meet your specific needs.
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
Leasing an office space requires several major upfront costs. Many leases require an initial 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.
Another disadvantage of leasing office space is that the size of the space is fixed- you can't increase or decrease the size of your lease depending on your fluctuating team size. Given that most leases last 5-10 years, your needs could change significantly in that time. You also have to manage the daily operations of a leased space, as this is your responsibility, not the landlord's.
Serviced Office
What is Serviced Office Space?
Serviced office space is very different from leasing. You rent your office space on a per desk, per month basis. A serviced office provider will own a large space, split into many smaller private spaces which are rented out to other companies. Facilities such as receptions, washrooms, and breakout spaces are available for common use by all tenants.
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 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.
Another advantage is the flexibility compared to lease or freehold office space. Contracts vary, but many work on an initial term of 6-12 months, and then on a rolling monthly or quarterly basis. Many serviced office providers will also adapt the space to your requirements (at additional cost). This includes installing signage and adding/ removing internal walls. You would also have access to amenities that you may not be able to afford in your own leased space.
Serviced Office Disadvantages
However, serviced office space becomes very expensive over the long-term. Serviced offices are 50-80% more expensive per square foot per year than leased office space. Over time, this will outweigh the lack of upfront cost compared to leasing. Also, while the space may be scalable, there will be an immediate space cost for every extra staff member you hire, unlike with leased space.
The amount of changes you can make to the space will also be very limited. Any changes will have to be carried out by the landlord to their design & specification, which would be much more expensive than using a design & build company directly, You also have no control over the quality or design of the common areas, such as receptions and breakout spaces.
Which is Best For You?
Which is best for you will depend on how important the respective benefits and drawbacks are to your company. The first thing to consider is your company size. If you have over 50 staff, then serviced office space will likely be impractical due to available size spaces and the cost. On the other hand, if you have less than 20 staff, then leasing will likely be impractical due to the size of available lease spaces, the upfront costs, and the maintenance responsibilities.
The most important factor in your decision is likely to be cost. Unfortunately, we can't give a definite point at which leasing becomes more cost-effective. Every space is different and priced accordingly. However, you should research the costs for equivalent size and quality spaces, considering the upfront costs as well as the ongoing costs for periods of 3,5, and 10 years. The larger the space, the more attractive leasing will be.
Another consideration is the importance of design control and branding. How important is it to you that your office reflects and enhances the culture of your company? If it is important, then leasing will be better due to the greater design customisability.
With all of the above factors, it's crucial to look beyond your current needs and consider how the needs of your people and company will change over 3, 5, and 10 years. The right decision is a decision that makes sense for both the current and future of your company.
Choosing Your Office Rental Model
Neither serviced or leased space is the absolute "best". Both options have their advantages and disadvantages. They're suitable for different companies and situations. Most medium (>50 staff) and large companies choose to lease. This is because it's more practical for larger teams, it's more cost-effective over time, and you have much control over the design of the space. Smaller and/or less established firms (<20 staff) may prefer the low-commitment, convenience, and flexibility of serviced office space.
Now that you know exactly what each option is, along with their respective benefits and drawbacks, as well as the 3 key factors to consider, you're able to make your decision. By researching thoroughly, modelling costings, and considering all factors, you can make an informed decision that suits both the current situation and future plans of your company.
Once you've made your decision, you have a lot of planning, searching, designing, and building ahead of you - there is a lot more to moving office than packing and unpacking boxes! To support you through the planning process, download The Ultimate Office Relocation Guide. It's one comprehensive guide that will help you understand everything that goes into an office relocation, what it costs, and how long it will take.
If you want to learn more about office rental options, read Coworking v Serviced v Lease v Freehold Office - Which Is Best For Me? For help shortlisting and selecting your dream new office, check out How to Choose Your New Office.
