Serviced office or conventional lease? A beginners guide

When you’re searching for office space in London you’ll face plenty of important decisions. One essential choice is whether to move into flexible serviced offices, or alternatively into a conventional office space leased on longer terms.

My goal in this article is to explain the key differences between these office types to help you decide what’s best for your company, even if you are a complete beginner!

Understanding this will save you time and effort and guide you towards the best type of space for your business.

Without further ado, this is what you are going to learn in this article:

What is a conventional office?

A conventional office is a private self-contained space, leased directly from a building’s landlord. The landlord will provide limited shared services (e.g. lift, air conditioning, ground floor reception, cycle parking and W/Cs). However, essentially when you take a conventional office you need to cater for your own needs.

The key characteristics of a conventional, leased office are:

• A private and self-contained workspace. Similar to a residential apartment it may share common services, but will have its own front door!
• Typically taken on lease for between 3 and 10 years.
• Conventional office space may be fitted out (perhaps by a previous tenant) but will typically be delivered as an open plan shell.
• The tenant will need to do their own fit out. This will include installation of separate offices, open plan space, kitchen, break out areas, meeting rooms, telecoms and data cabling and furniture.
• At the end of the lease the tenant will have to strip out the fit out and “make good”.
• The annual rent is often expressed as a price per square foot per year. The larger the space the greater the rent. Rent is paid quarterly to the landlord along with service charges (which covers any facilities that are shared by other tenants within the office building – for example, maintaining the ground floor reception).
• Additionally, business rates are calculated on an annual basis and paid to the local authority typically in instalments by monthly direct debit (much like Council Tax for residential property).
• The tenant also bears responsibility for office utilities.
• The legal process to execute a lease can easily take a couple of months and you’ll need a solicitor.
• You make quite an investment of time and financial resources when you take a conventional, leased office, but when your company is ready for this you can reap the rewards.

You make quite an investment of time and financial resources when you take a conventional, leased office, but when your company is ready for this you can reap the rewards.

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What are serviced offices?

Serviced offices are a bit more like an office hotel. It provides a short notice ready-made “plug & play” office environment with furniture and fibre connectivity in situ.

The defining characteristics of serviced offices are:

• Businesses get a private office, with additional shared common facilities. Operators typically offer break out areas, kitchens, and meeting rooms for use on demand (when available).
• You take the space on a fairly short term licence for say 3 months to 2 years.
• Your space will be fully furnished, fitted out and ready to occupy.
• At the end of the licence you will have very limited making good obligations.
• Rent is expressed as an amount per desk per month.
• A single, all-inclusive monthly invoice takes care of the vast majority of your running costs – including rent, rates & service charges.
• You will pay more for optional extras like shared use of fibre, telephone handsets, secretarial services, meeting rooms etc.
• Signing a serviced office license is relatively quick, easy and hassle-free.
• Renting serviced offices will expose your company to fewer risks. Terms are flexible and/or short term with most costs clearly defined and capped.
• Shared, coworking offices – with ultra-flexible workspaces, hot-desking etc – are also widely available via many serviced office operators.

Signing a serviced office license is relatively quick, easy and hassle-free.

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What are the key differences between a conventional lease and serviced office space?

Conventional space provides control, stability, brand identity and size. Serviced office space provides instant access, flexibility and an array of additional premium services.

• Conventional, leased office space is a bit like a long let residential apartment. You take private space behind your own front door and within reason, you can do what you want with your property. The office space is often delivered as a shell the tenant has to fit out. A serviced office is more like an office hotel. It is a ready-made functioning office that can be taken at short notice on flexible terms.
• A conventional landlord will only provide basic services to enable a building to function. A serviced office operator may offer a range of additional business and lifestyle services as part of an agreed package.
• A traditional lease may last between three and ten years, providing a rock solid business base for an established company. A serviced office license may be from 3 months to 2 years – useful flexibility for a dynamic company or start-up business.
• Conventionally leased offices are defined in terms of its size (measured per square foot). Serviced offices tend to be defined in terms of how many desks can be accommodated. A company taking a conventional office for 10 people may acquire a 1000 ft² office. Whereas the same 10 person company taking a serviced office may fit into 500 ft².
• At the end of a lease tenants have to strip out their fit out and “make good”. Moving out of serviced office space is more like checking out of a hotel.
• Conventional leases take time and legal expense to execute. Whereas serviced office licenses are pretty quick and easy to get over the line.
• When you take conventional, leased offices you make more of a commitment to the landlord. Equally the landlord makes a larger commitment to the tenant in allowing you to stay for a longer time without disturbance.
• Your commitment to a serviced office is lower and so are the financial risks. But the landlord makes a correspondingly smaller commitment to you. If a more desirable tenant knocks on their door, they may ask you to relocate within the building or even ask you to leave at the end of your short contract.

Conventional, leased office space is a bit like a long let residential apartment. A serviced office is more like an office hotel.

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Which office model would work best for your business?

Firstly a health warning: Any business would experience pros and cons in each type of office space set up. There will also be plenty of exceptions to the following considerations:

Timing

If you need to be up and running within weeks, serviced space would be a much more realistic option. A conventional lease typically takes much longer.

Flexibility

Serviced office commitments tend to be much shorter so there can be lots of built in flexibility. Upsizing and downsizing at short notice will be relatively straightforward.

Commitment

Conventional office space commits you to a lease for between three and ten years. However, negotiated break clauses and the opportunity to sublet all or part of your space can mitigate the financial risk. For businesses who are able to make a longer term commitment, a conventional lease can work very well.

On the other hand, commitment to a serviced office is minimal. Typically, you could terminate an agreement with as little as a month’s notice.

Resource

The serviced office model is great for enabling you to concentrate immediately on your business, while the office operator provides the space and a plethora of additional services.

Control

Conventionally leased offices will provide a more bespoke environment, where established businesses can control fit out, brand identity and the work experience of their staff and visitors.

Size

Conventional space tends to be larger, much like your apartment being larger than a hotel room.

Facilities

Like a hotel, serviced space will often provide your business with plenty of facilities.

Acquisition cost

Conventional offices will certainly be more expensive and time consuming to acquire. The legal process can be a little torturous, but it’s worth being aware that a good acquiring agent will often save you much more on the commercial elements of the deal than they will cost.

Cost of occupation

It is difficult to compare the relative costs of renting serviced and conventional offices simply because you are not comparing apples with apples! And of course the costs of renting both types of offices vary across London.

That being said, I would suggest that over the short term serviced offices are more cost effective. However, over the longer term conventional space will eventually work out cheaper, with lower long term costs.

Over the short term serviced offices are more cost effective. However, over the longer term conventional space will eventually work out cheaper, with lower long term costs.

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Some final thoughts on serviced vs conventional

As you can see the choice whether to take serviced or conventional space becomes much easier once you’ve understood the relative advantages / disadvantages of both models.

In our experience older, larger more established businesses will often opt for conventionally leased office space. As we’ve seen, they can then benefit from size, control, brand identity and economies of scale. On the other hand, start-ups and younger, more size dynamic companies will often go for the quicker, more flexible serviced options.

You can easily compare office types using our handy comparison grid. And our Central London office rental guide allows you to switch between the costs of conventional and serviced offices for the main central London locations. Finally, our London office space calculator will also allow you to compare total costs for your proposed office between serviced and conventionally leased space.