Apart from staff, the major overhead for any business is usually its office space and, as a result, relocation may be looming for many as we enter 2011. A more competitively priced office space could mean the difference between keeping people on or having to make redundancies in the short term, and can also form a crucial part of a business plan in the long term.
Not everyone will be looking to downsize, however, and the more recession-proof companies may actually be looking for a larger space to accommodate their growing business. Either way, it’s worth taking the time to understand the different types of office rents that are available, and the hidden costs in each case, so that you choose a package that’s right for your business.
Until relatively recently, the most common way to rent office space was a conventional lease.
Contracts for this type of space commonly have a five-year minimum term, although some landlords may offer rent free periods for a longer term commitment and some may offer break clauses. This type of lease is ideal for companies with a structured, measurable growth pattern that are looking for security of tenure and long-term cost savings. Companies uncertain of their future growth, however, may need to think carefully before committing to a lease of this nature.
Serviced offices, on the other hand, tend to offer short-term rents, often with all-inclusive packages around services such as internet and telephone. These spaces tend to better suit businesses that want to keep their office presence, but do not want to be tied in to a long-term overhead. The popularity of these serviced offices has grown in recent years, particularly among SMEs wishing to cut the size (and cost) of the office they need whilst allowing for flexibility through desk sharing and home working. BE Offices has seen demand for office space for less than ten people grow by 45 per cent over past six months alone.
Similarly, there is also a growing demand for ‘hot-desks’, in which companies or individuals simply rent a desk as and when they need it. London has seen a 220 per cent growth in use of hot-desking over the past year, with much of that demand created by SMEs putting their mobile workforces in a location nearby and then only paying for desk space by the hour. This provides a professional appearance and gives employees access to services such as IT, copying, and secretarial – but only when needed.
So which of these approaches is right for your business? The answer is that all, at some point, may be the right option, but it’s important to understand where you are in the growth cycle. So, if you are just starting out, you can afford to be flexible in order to keep overheads low, by hot-desking, for example, whereas once your business begins to grow and you take on staff you will clearly need to look at renting a space over which you have greater control.
In general, a company’s office requirements will grow with the business – from smaller serviced premises to a larger leased space but, as I’ve mentioned, there are times when a business needs to downsize or consolidate premises in order to be more efficient. This is where the flexibility offered by serviced offices can be a huge help.
One company that found itself in this position was YMCA, which recently moved into a serviced office in the City, provided by BE Offices, whilst negotiating an office merger.
“We had two London offices in Holborn and Walthamstow and we wanted to merge the two and move into a single, leased premises last year,” explains Tracy Derby, Office Services Manager at YMCA England. “There were some complications with the lease negotiations on the new space, however, which left us in a bit of a dilemma, and as a result we decided to move into serviced offices to give us more time to look for suitable permanent premises and to go ahead with our business strategy of merging the two offices without rushing things.”
Whatever type of office you choose, check the contract thoroughly in order to understand what your commitment will be and for how long, as well as any clauses that could end up tying you in or costing you additional money – such as rolling contracts or compulsory follow-on fees – particularly if you want to exit early. Doing that before you sign will remove any headaches down the line.
Simon Rusk is a board member of the Business Centre Association and finance director, BE Offices