A lot of people ask me…
“Why would a company take space from you guys when they can rent it cheaper by opting for a conventional lease?”
The initial thing to ensure is that you are comparing like with like. A conventional office lease is “exclusive of all costs” meaning tenants are required to arrange and pay all services separately. In a serviced office, the clear majority of the services are all wrapped up in your monthly licence fee. So, to compare apples with apples, you need to add all the typical costs on top of the conventional rent price.
Flexibility Is The Key
The other point that needs to be taken into account is flexibility. With a conventional lease, you have none; you are contracted for the entire term. At present in Dublin, Ireland landlords are looking for a minimum of “10 years term certain”. This means, typically, a landlord requires a tenant to sign into a minimum of a 10-year contract with no break options.
If a company opts for a flexible workspace solution such as coworking or serviced offices, contracts are typically for a period of between 1 month (rolling) and 3 years with most parties opting for an initial 1-year contract to start which can be renewed thereafter.
For a lot of companies…
They don’t know where they are going to be as a business next year, never mind in 10 years’ time. So, flexibility makes a lot of sense for companies who are expecting to grow quickly. Serviced offices & coworking then give the company the option to be able to grow into larger and larger space within the building without penalty, meaning they can minimise the amount of space they need to occupy which transpires into cost savings.
Allowing For Growth
If you were starting a business today and were hoping to grow to 100 staff in the next 5 years, you would need to commit to space for those 100 people now with the conventional lease option. With a flexible workspace solution, you could opt for an office for up to 4 people now with your provider offering you a growth plan to incrementally increase your office size as you expand, thereby decrease your monthly startup costs significantly when compared to that of a conventional lease.
With a serviced office you can sign up today and move in tomorrow. The serviced office operator will complete your office set up for you to include: making sure your IT set up is correct, your telecoms are ready to go, all furniture is in situ the way you want it and everything right the way through to having great coffee at ready.
To be fair, you also need to add in the time it takes to manage all these costs for a company taking conventional space. In the initial stages, you typically engage an estate agent to represent you in the acquisition, to physically search & view office space, negotiate & agree your preferred space.
Once space is agreed, they will complete a building survey, proceed through the legal process, arrange for refurbishment works to take place (at a minimum carpeting, painting & upgrade of IT cabling), sourcing and purchase of office furniture and incidentals, purchase of telephone system, broadband installation, requirement for IT company to manage your network and the list goes on….
A Conventional Lease
With a conventional lease the tenant is required to arrange for and pay for all ongoing outgoings; these will include: building insurance, business rates, light, heat, service charge, security, broadband, IT management, etc. It needs to be recognised that there are costs to pay for these items but also the cost to a company of having to manage all these services, manage the suppliers and ensure continuity of service. A lot of companies don’t want to have to worry about taking meter readings or taking speed tests of their broadband to make sure they are getting the correct amount of broadband.
Sourcing The Right Space
If someone asked me how long would it take them to source and move into conventional space in Dublin city, I would say no less than 6 months, realistically budget 6 – 12 months. It would take a minimum of 8-12 weeks of viewings, 4 weeks of negotiations, followed by 8-12 weeks in legals and then once closed typically 8 weeks of fit out. This is based on everything going to plan, however, with the supply of office space being tight in Dublin city, tenants can find themselves in a competitive situation and find landlords being choosy with regards to a company’s covenant.
The other item to consider is reinstatement. Nearly all conventional leases in Dublin, Ireland, include a reinstatement clause. This means that the tenant must put the premises back into the exact same condition it was in at the time they took up occupancy. So, if you rent a property that is in excellent condition, you will be required to get it back into that exact condition. As you can imagine, this could be extremely expensive as every part of the space will have wear and tear from the date of move in, 10 years before.
Cost Of Closing Off
Typically, tenants don’t carry out the improvement works at the end of the lease term. Normally, the landlord will appoint an engineer or surveyor to carry out a report and to price the cost of the dilapidations, a final figure will be reached and the tenant pays this figure upon termination of the lease or shortly thereafter. Typically, this can cost €50 – €150 per sq m exclusive of the tenant’s professional fees which will also be required to be paid. So, on a 1,000 sq m office, this could cost up to €150,000.
If you know what your growth rate looks like and you can predict your company size for the next 10 years, then conventional space makes sense. However, a lot of businesses and startups don’t know what next year looks like, never mind 10 years’ time. So, if you plan to scale your business as fast as the market allows, then you need to be able to increase and potentially decrease the amount of space you occupy. This lets the company stay lean, predict their monthly outgoings and stay flexible.
In Dublin at present, there is a “war on talent”.
Companies are fighting to hire the best people possible. Having a well-managed office with all the bells and whistles is a critical factor for being able to attract the top talent that most companies with ambition require to drive and achieve the company’s goals. Smart companies know that the cost of their wages dwarfs the cost of accommodation. So, not being able to hire the staff your company needs or worse, losing your best staff because your workspace isn’t up to scratch, is far costlier.
Happy office hunting!
AUTHOR: JOE MC GINLEY – CEO, ICONIC OFFICES
Joe is the driving force and creative madness behind Iconic Offices.
When he’s not busy “hustling” and planning the Iconic Offices’ world domination
you can find him bouncing to hip hop beats.