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Doctor Doctor, what are the main pros and cons of serviced offices over non-serviced?

Office space

Dear Doctor, Doctor Doctor, what are the main pros and cons of serviced offices over non-serviced?

James Nicholson says...

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Firstly, congratulations, sounds like your business is taking off!

We have worked with many businesses where the founders have started working from home, or from cost effective co-working spaces. Whilst these low cost solutions are great initially, there comes a time when you want, and can afford to make the step-up and take some space of your own.

The next stage is typically to graduate into a dedicated, private office space. We see a number of clients choose to do this in a serviced office, on licence agreement, rather than to take a conventional lease. The benefits of a serviced office are:

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  • Private, dedicated space, rather than open-plan desk space.
  • All inclusive and ready-to-go – your rent, rates and service charges, basic IT infrastructure, telecoms and furniture are typically included, or can be negotiated as part of an all-inclusive deal.
  • Flexible terms – the licence agreements can often be negotiated on three-monthly commitments, but sometimes even as short as month to month. This is a real comfort when money is tight, the future is uncertain and you can’t afford to tie up capital on long-term commitments.
  • Other benefits – virtual receptionist, cleaning and management services, access to informal meeting areas and fully serviced kitchens are commonplace.
  • Meeting rooms are available on demand (typically at a cost).
  • Community benefits – modern co-working spaces encourage and facilitate collaboration with other members of the community.

So what are the downsides?

  • Costs will be higher per square foot when compared to similar space taken on a conventional lease basis – you are paying for the convenience, services and flexibility of term offered.
  • Be aware, there are typically a few additional charges for things like faster broadband/data requirements, printing, private meeting room facilities etc. These can add up if you are a heavy user.
  • You can often be limited by the standardised provision of office space. For example, not all providers can accommodate specialist IT requirements, desks are a standard size (small usually), they don’t usually suit businesses that want/need to be noisy, or who have lots of visitors.
  • The licence agreements will typically allow the operator to move you to a different part of the building if that is necessary in order to accommodate other new members/occupiers.

The alternative to a serviced office is to take a conventional lease. In our experience, businesses typically start to consider a conventional lease when their headcount reaches 20-plus employees and they have greater visibility over a longer time horizon, particularly with regards to future headcount growth. It’s at this point in time that the benefits of conventional leased space become sufficiently attractive to outweigh the downsides. The main benefits being:

  • Opportunity to create a space that gives the business some of its own personality, culture and brand presence
  • Longer term security of tenure, in a location and building of your choice, with longer term horizons for business continuity.
  • Fully customisable business infrastructure
  • The downsides of conventional leased space are as follows:
  • Longer term commitments typically required (although this can be mitigated if you can find shorter terms sublease options) so a lease can be a significant liability to have on your books
  • Typically requires some hefty capital expenditure, to fit out the premises in the first place, and then again, at the end of the term, to reinstate the premises to how you took them
  • A substantial rent deposit is often required to satisfy the landlord’s perceived risk of you defaulting on paying the rent during the term
  • The space is fixed for the duration of the lease – typically opportunities to expand/contract are very limited. So you need to be comfortable with your growth projections.
  • Moving takes time – the search, negotiations, legal documentation process and fit-out can take around six months from start to finish, so plan ahead!

With regards the final point, a lease is a contract – so do be careful not to sign up to anything you don’t fully understand. Better still, get proper professional advice.

Next steps

If you are ready to commit to search for office premises on a conventional lease basis, involve a commercial surveyor from the outset. They will guide you through the process – help you define your brief, unearth all the available options, help you shortlist and negotiate the best possible terms on your behalf, avoiding all the potential pitfalls.

This will give you peace of mind and save you a lot of time, and in almost all cases, will save you money too. When you’re happy with the ‘heads of terms’ negotiated, it’s equally important to engage a lawyer with commercial real estate expertise to represent your interests in the documentation of the lease.

For more property-related advice or to find the perfect office in the UK or overseas, contact James Nicholson on +44 (0)7747 072 819 or via james.nicholson@knightfrank.com.

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