1 January 2018

Serviced or Conventional? Which type of office space is right for you??

Choosing the right office space for your business can often be a daunting task with so many different types of office space and legal agreements out there. In this blog, we try and break down all the different options to help you choose the right type of space for your business.

SERVICED

This option is he simplest of the three, providing a plug and play type of workspace with a number of amenities provided for you including phone lines, internet connections, and furniture. Furthermore, next-generation serviced office operators usually provide added incentives such as organised events, strong collaboration zones, free beverages and online applications to help manage their office space on the move.
Main Benefits

PROS

Flexibility – short-term flexible licence agreements are the norm, typically 12 months but can be shorter. This appeals to smaller, growing business that perhaps don’t have business certainty or financial strength to commit to a 5-year lease and all the associated liabilities. It is also much easier to expand or contract quickly into or out of space which can have a huge impact on cost savings for businesses.
Cost – initial capital expenditure usually spent on things like fit-out, professional fees and IT/Data infrastructure is factored into the all-inclusive licence fee which is normally paid quarterly. So although in the long-term typically a more expensive option, it simplifies accounting procedures and budgeting and makes sense over a temporary period.
Time – rather than complex lease agreements (standard with traditional leasehold space), standard short form licence agreements are the norm, saving time and legal fees. This means that a business wanting to relocate urgently can really benefit from this swifter, managed, fitted out, plug and play type of facility.
Availability – If you are looking for space in central London for sub 3,000 sq. ft. then options are limited at the moment due to a lack of supply. The serviced office arena caters well for this size-range thus filling a significant demand gap.
Community – perhaps the newest benefit is the power of collaboration these facilities can offer, in particular, the next-generation serviced offices that really emphasise the network and unified business entity that their facilities create. This is of great value to start-up businesses that can truly take advantage of the surrounding business community for support through effective and organised collaboration.
Simplicity – the serviced office operators will fully manage your premises from cleaning to payment of business rates so the sometimes heavy responsibility of business occupation is absorbed by the serviced office provider allowing you to focus on your core business.

CONS

Cost – with increased flexibility comes increased costs. These short-term, all-inclusive contracts tend to be more expensive per month than longer-term traditional leasehold options. Also, the serviced office provider will have full power and control over cost components, which could mean savings made, might not be fairly passed onto you, the business tenant, and the provider has the ability to uplift the licence fee with comparative ease.
Control –Due to the nature of the contract, control is significantly limited. You do not govern things like signage, fit-out and who you share the space with. This can sometimes be seen by employees and clients alike as temporary and lacking brand identity. Also, the agreement is a licence, therefore, you will not have exclusive possession of your space and you can be moved or prevented from renewing which often happens so that larger, more lucrative tenancy agreements can be accommodated by providers. I have also seen situations where rooms that were originally allocated for meeting rooms are subsequently leased creating a shortfall in meeting room options.
Privacy – Serviced office space is shared, meaning that although you might have a dedicated office you are still situated in a bustling area with a high density of tenants which for some businesses raises serious privacy concerns and a challenge to protect confidential information.

MANAGED

These are the hybrid between serviced and leasehold. They are leasehold premises that are acquired and managed by a third party especially for you, typically on a 2-3 year lease but it can be for a longer term. The aim is to balance the flexibility of a serviced office and the security and control of a leased option without upfront capital expenditure or end of lease unknown exit costs.

PROS

Best of both worlds – The operator will be acquiring the leasehold space and taking all of the responsibilities that come with that. They will then arrange and fund the fit out to your specification and will tailor additional services (such as telephone lines through to photocopying) within the fixed cost to suit your needs. This could include all of the additional services that you might find in a serviced office if required but typically the additional services are limited.
They also provide flexible leases that can be tailored to your needs, whether that’s for one year or five years but it’s typically 2-3 years in length.
Accounting simplicity – There is little upfront capital expenditure as the office should be designed to your needs and everything from service charges to business rates and dilapidations is wrapped up into the quarterly payment. This essentially fixes your outgoing costs so you know exactly how much you will be paying throughout the entire term.

CONS

Reduced flexibility – While many providers claim to offer flexible contracts, in reality, they are much more fixed than serviced offices. This is because the provider will invest time and money in creating the right office for you and so needs you to sign up for a limited period.
Reduced amenities – You might not also get the full range of services offered by a serviced office. It’s worth checking your agreement and contracts for what will actually be provided and what you’ll end up paying for yourself. You need to include all these costs into your budget when judging which option is best for you.
No Community – You will not necessarily be sharing space with other tenants, so if you are seeking workspace enabling external collaboration opportunities then this option might not be for you.
Costly – Because the third party managing the lease must ensure their costs, are covered and additionally generate profit from managing the lease, the overall cost of ownership is likely to be more expensive than if you took a leasehold direct. Also, potential cost savings during the lease on things like business rates are unlikely to be filtered down to you.

LEASEHOLD

This is a more traditional form of office rental. It involves leasing the office from a commercial landlord over a period which is usually in excess of 5 years. You not only get the space but also have full control over a number of internal aspects like decoration, room layout, etc. But it also means you’re liable for repairs, maintenance and security.

PROS

Cost – Usually you get a better monthly rate over a long-term contract than you would with a serviced or managed option. The length also provides a certain level of stability, allowing you to budget further into the future.
Control – You also get a lot more say in the office’s look so it can better reflect your business. You can make space your own in a number of ways from totally redecorating it to installing new technologies.
Transparency – As you are firmly in the driving seat you can see and control all lease components including re-occurring rents, lease rights, liabilities and any everything else that comes with your acquired asset.
Availability – If you are looking for space above 5,000sq.ft (50 people) then there will be more suitable leasehold space available.
Suitability – These types of offices usually work best for established businesses that are past the major growth stage, secure financially and able to commit a lease term over 5 years.

CONS

Full liability – As you’re essentially the owner of the space during the term of the contract, you’re responsible for everything. This includes the set-up cost when moving in. Not only is there a vast amount of paperwork, as you need to sign up to internet providers, utility companies, insurance firms etc, but you’ll also be faced with a considerable upfront capital expenditure for fitting it out to your standard.
Maintenance Then there’s the general upkeep, including day-to-day maintenance of lighting, rubbish removal, cleaning and security, to long-term problems like repairing leaky roofs and resolving parking disputes.
Rigidity – You will be creating a landlord & tenant relationship by law that has all sorts of legal ramifications but primarily you will be losing flexibility, as contracts are harder to break or alter.

Conclusion

it is good to have options and variety but important to remain diligent on which option is most suitable for your business now and in the future. The right option for you is completely dependent on your specific criteria and determined by several variables. If you are still unsure on which route is best for your business, feel free to contact me for some guidance. We specialise in helping occupiers develop and implement the most appropriate workspace strategy for their business. Just tell us about your potential requirement by CLICKING HERE and we will provide you with our free initial strategy proposal.

Written by Matt Perkins MRICS (Founder of Based Hub)