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Beginner's Guide

Your UK Office Options Explained

Office property generally accounts for 20% of a company's costs, second only to salaries. Therefore the decisions you make about office space today will be vital to the success of your business now and in the future.

When assessing your commercial property choices in the UK you typically have 3 options :

  1. Freehold premises
  2. leased or rented offices
  3. serviced office space.

Option 1: Freehold Work Space.

Buying an office property outright might not be a realistic option especially for a start-up or SME, as it inevitable requires a considerable amount of capital expenditure. Commercial property mortgages can be arranged but you are normally required to inject 25% of the property's value before a lender will agree terms. By owning your offices you will save money by not paying rent however if your property is mortgaged you expose the business to increases in interest rates. You will also have to cover the cost of legal bills, rates, fit-out, insurance, maintenance, cleaning and security.

On the up-side, purchasing your office outright is a long-term investment and is a sign of stability. If you need to downsize in the future you can sublet office space, however it can be difficult to find a suitable office tenant quickly meaning you may be left paying for office space you are not using.

Option 2: Leased Office Space.

Most commercial properties in the UK are rented or leased and contracts can run for up to 25 years. Rent reviews and lease-breaks can be negotiated at intervals over the course of the contract. Rarely are two office leases identical and you will almost certainly have to pay the landlords legal fees.

UK Office rental costs vary enormously by location, condition of the premises, lease restrictions and the general state of the property market. Start-ups and SME's seeking high-quality office space, in prime city centre locations are often unable to meet the high costs associated with such properties. However you should always check with local commercial property agents to see what rents have been achieved rather than those advertised as asking levels.

Most small and particularly new businesses are likely to be asked to provide a guarantee that they can meet the cost of renting their office suites. Often a Bank Guarantee will suffice but some may require a cash deposit or charges on director's personal property. Office rents are normally paid quarterly in advance. Watch out for penalties for late payments, these may incur stiff charges, eviction and restraint on assets like office equipment. Also look out for the rent increase provisions within the lease. Some contracts may state that rents will be reviewed upwards only, if the property market cools you may end up with an extremely expensive lease.

The advantages of renting office space come with the security that you have a stable base for the length of the lease. That stability will come at the cost of flexibility, for example if you need to expand or downsize your business. If market forces demand a reduced workforce you could be left paying for empty office space.

The lease will also contain details of extra charges. Watch out for catch-all powers for landlords to make their own calculations on costs. This is very important when sharing premises with other tenants, as charges will be imposed for areas such as cleaning and lighting stairs and corridors, security costs, insurance and decorating/repair work to the outside of the building. Remember also that expenditure on improvements to the building will likely be written off at the end of the lease agreement. You will need to factor these costs and local business rates into the overall square foot price when comparing your office options.

Option 3: Serviced Office Space (Managed Offices or Business Centres)

Serviced office suites are often licensed rather than leased. A licence is a simpler form of agreement than a lease and unlike traditional leases you will not have to pay the landlords legal costs. Serviced office accommodation generally allows you to move in and out quickly and is therefore ideal for organisations that need flexibility.

Take a serviced office and you pay for the office space you actually use, communal areas such as reception/waiting areas, kitchens and washrooms are usually included. It is also easier to increase or decrease the size of office without having to change your business address or having to operate from two sites.

Business Centres are exactly that, they provide a range of services including a reception team to greet your visitors and answer your incoming telephone calls. Your office space will be fully furnished and come complete with hi-tech IT and telecoms connectivity, so you can simply move in and get straight down to business. During the 1990's Business Centres sprang up all over the UK and are popular with start-ups and SME's who want city centre offices but cannot afford to buy in prime office locations.

Larger corporations also take advantage of the flexible terms available to accommodate project-team or remote sales-forces. Some of the large, well known serviced office providers brand their accommodation. If image is important to your organisation then ensure you look for operators that offer unbranded serviced offices.

In conclusion:

In this article we have attempted to set out the pros and cons of the three main office options a UK based business has open to them. We strongly recommend that you take professional advice before making your decision and we'd certainly advise you to compare options from the three categories.

However please be advised that you cannot simply compare costs between the three options. The square foot price of a leased office will normally appear lower than a serviced office quote but you must remember that the serviced quote also includes insurance, maintenance, furniture, security, rates, reception facilities and other costs you will be liable for if you take on a lease.

Next Steps:

1: Find out how much office space you need with the help of our online office calculator tool Make a note of the result as we need it to provide you with an accurate office quote.

2: Request your free, serviced office cost proposal

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