Menu

office

types of office space

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

0

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.

Follow us on Facebook to receive notification on future blogs.

Written by Matt Perkins MRICS (Founder of Based Hub)

coworking

So what actually is Coworking and is it hear to stay?

0

The coworking craze is hard to ignore and it is becoming increasingly popular amongst business tenants as the preferred workspace solution. Over recent years it has risen in popularity across the globe, in London alone there are around 1,000 coworking spaces and that number is growing rapidly. But why is it a rising sector and what does coworking actually mean?

Firstly, it is important to understand how it differs from serviced and conventional leasehold office space. Wikipedia describes coworking as:

“A style of work that involves a shared working environment, often an office, and independent activity. Unlike in a typical office environment, those coworking are usually not employed by the same organisation.”

So, in simple terms, coworking is a shared working environment accommodating multiple business tenants. The question that might reasonably be asked is: isn’t that what serviced offices have been offering for many years?

The main distinction between coworking and a serviced office is that one provides a dedicated suite (serviced office) the other is open-plan shared deskspace (coworking). They are often both fully managed and have shared common areas. In some cases, providers will often provide facilities which have both private office and coworking, such as WeWork and The Office Group. Personally, I think the most interesting distinction is between traditional and next-gen shared office space providers, a difference which is continually evolving and diversifying.

Community

One of the main differences is ‘community’. For example, one of the most successful co-working providers ‘WeWork’ can attribute much of its success to developing an optimal working environment and community ethos. Instead of simply providing workspace as a function, it is creating a gigantic business entity with huge international reach. This is particularly attractive to start-up companies that don’t have certain in-house functions such as accountancy, technology or marketing and want to utilise a trusted network. Being able to tap into a collective of professionals who share a common ground (i.e. their workspace and community) not only delivers great efficiencies but also offers an extra element of trust and in some cases a source of new business opportunity.

The next generation coworking providers are harnessing the supportive and collaborative atmosphere that start-ups have been thriving in for years. As a result of packaging this innovative formula, ‘next generation’ coworking providers are fast becoming a natural accelerator for SME’s and entrepreneurs alike. However, what perhaps is most interesting, is that this atmosphere has stimulated the interest of big corporates that are starting to recognise the benefits of adding coworking options to their portfolio. The potential to collaborate and innovate are the most obvious added values, but attracting the best talent also plays a part. Today’s younger employees are used to working on laptops and feel comfortable in a coffee shop style environment, so it can be argued that they will be productive and happy in a working environment that is moulded around them, providing freedom and options for different working activities. In the fight for talent, corporates are really starting to see the benefits of coworking as a strong talent attraction tool, as after all it is people that are invariably a company’s most valuable resource.

Some might argue that this community aspect also means that the line between work and life is blurring and there are arguments to suggest this can be both a good and a bad thing. The coworking company Work.Life brand themselves to promote this more transient work/life balance focusing heavily on wellbeing and fun in the workplace. Historically, workspace was an area of strict professionalism and one major criticism of these coworking spaces is that they can be immature and disruptive to productivity.. In my opinion, these new fun and social workpaces are great aslong as a proper balance is kept, but I am a millennial so perhaps a little biost!

Location

Central London has seen a rapid emergence and adoption of coworking in recent years, but it all began in Berlin in 1995 with an organisation called ‘C-Space’ who provided free public WiFi and a community environment. Although, officially, the first coworking space was opened in San Francisco in 2005 as a reaction to unsocial business centres and it wasn’t until 2007 that the term coworking became more mainstream.. From 2010 onwards coworking became more popular in European cities and the most recent figures suggest that there are around three times more coworking facilities in London than New York.

Coworking is predominantly found in major cities around the world but due to an ever-increasing location independent workforce, coworking has also emerged in tropical destinations such as Bali and Thailand. Essentially where there is a good WiFi connection and coffee, coworking will likely be present!

Technology

The world has seen huge advances in technology over the last decade, particularly in tech that helps people mobilise more easily, such as more powerful smart phones and video communication software. This wide-spread adoption of relatively inexpensive technology has spurred entrepreneurial activity in the tech sector with innovators adding “tech” after, what it seems is almost every sector! Prop-Tech, Fin-Tech, Med-Tech, Food-Tech providing some of the best examples Technology has firmly integrated itself across all industries and the efficiencies it brings have resulted in a seismic change in how we work and coworking has capitalised on this.

This is demonstrated by the changes in occupational densities. Coworking facilities are usually designed around one person per five or six sqm compared to the traditional 1:10 sqm ratio of more standard offices. This might sound very tight, but smaller computer hardware and high-tech air-conditioning systems mean that they are able to provide a suitable working environment.

Type of businesses

According to Companies House Data, 2015 had the highest number of new incorporations on record and in 2016 research from Start-Up Britain showed that that a record number of 80 UK businesses per hour were being formed!

Therefore it seems quiteclear that small businesses are exploding onto the scene in record numbers and although conventionally weak in the eyes of traditional landlords (and therefore often turned down when wanting to acquire traditional leasehold space), co-working providers welcome these companies with open arms and provide much more flexible terms which is critical to a business in it’s infancy. As a result, when done properly, coworking spaces become a vibrant arena filled with innovation and passion for work which is a powerful thing. Consequently, some established corporates from various sectors are now taking a slice of the action by co-locating, at least part, of their workforce into these natural innovation hubs.

How is this impacting the office market?

Our records show that over the last three years well known serviced office and coworking providers have acquired over 3.1m sq ft in London. When compared to traditional office take-up in London (circa 39.61m sq ft in the last three years), shared office space still accounts for a small proportion of all take-up but it is growing at an average rate of 10% per annum. But will the bubble burst?.

Traditionally landlords are put off by the serviced/co-working tenant as the perception is one of an uncertain revenue stream due to the weak covenant of sub-tenants and increased management costs due to the volume of sub-tenants using their building. However, the take-up in the London office market by coworking operators and the continued demand for space cannot be ignored and it is clear that many of the biggest landlords are making moves to change their traditional offering by:

  • Trying to offer more of a community feel and amenity by making the often vast reception areas into buzzing places that can be used for collaborating with colleagues, informal meetings and relaxing by adding a quality coffee shop, free wifi, modern furniture and flexible design.
  • Allocating a proportion of available space within vacant buildings to either co-working operators or a hybrid solution whereby more flexible leasing terms can be offered (typically one to five-year terms often with breaks) and floors can be divided so that smaller, fast-growing businesses can be accommodated. This drives income for landlords but often doesn’t directly increase the value of assets due to the traditional valuation methods favouring long leases to institutional grade covenants.
  • Increased and bespoke services – whilst this is rare it is certainly being looked at with the idea that if tenants want it and are prepared to pay for it, additional and bespoke services can be provided that enhance the quality of experience and move traditional offices more towards the hospitality industry and the experience you might encounter in a hotel.

The demand from coworking operators is extremely strong, with requirements ranging in size from 20,000 sq ft up to 100,000 sq ft plus. It will be interesting to see how these operators fare in a market downturn because many are so exposed to the start-up market that may turn to home working if facing economic decline. We will have to wait and see but what is clear is that people, especially 18-35-year-olds, are working differently and want their workspaces to reflect that. It is also clear that technology is resulting in innovation within the office market and the market is set to change further in terms of both how people use buildings and how technology will bring efficiencies that will influence specification especially in terms of connectivity.

Conclusion

I think coworking is here to stay. They are fun, social and enjoyable places to work, which if done right can create an optimal working eco-system which heightens productivity, innovation and happiness in the workplace. It is evolving quickly and over the next five years, I think we will see more diversification amongst providers and increased niche offerings shaped to certain occupiers.

If you are looking for the right coworking space for your business, tell us about your potential requirement by CLICKING HERE and we will provide our initial strategy proposal for FREE!

Follow us on Facebook to receive notification on future blogs.

Written by Matt Perkins MRICS (Founder of Based Hub)

error

Enjoy this blog? Please spread the word :)