We often find that new clients are not equipped to begin their search for new London office space, principally because they haven’t addressed some fundamental questions, and have put off key decisions until their search is well under way.
When looking for new office space in London, it all boils down to location and budget
When looking for new office space in London, it all boils down to location and budget.
I’ve addressed the 5 steps you should take to choose the best location for your London office. The second part of the equation is budget. Before you begin searching for London office space, you must establish what you can afford or what you are prepared to pay. So – I hear you ask – where on earth do I start, when I don’t know how much office space in London costs? To establish a budget for your new offices, we will look at 5 factors:
- understanding how different types of office have different cost implications
- a breakdown of one off costs that occur at the beginning of the lease
- a breakdown of recurring costs, and what they all mean.
- knowing how office property costs vary across London
- discovering tips on how to minimise your office costs, and saving money
1. Do different types of office have different cost implications?
The quality of office space varies across London, and this will be reflected in the rent. For example, offices with air-conditioning and raised floors will be much more expensive than those with just central heating and solid floors.
Aside from quality variations there are 3 main types of office space in London – each with their own cost pros and cons:
- conventional leasehold space
- flexible serviced or managed space
- freehold office space
Conventional Office Lease
Side by side, priced per square foot, conventional office space are more cost effective than serviced offices. However, bear in mind that conventional offices have additional costs. Before you move in, you will pay legal fees for processing the lease and an acquisition fee to a commercial agent. A tenant takes full responsibility for everything within the space – so fit out, furnishing, telecoms and IT infrastructure will need to be paid for. Business rates and serviced charges also apply to conventional leases (see ongoing costs below). Larger, established businesses generally prefer conventional leases because they retain full control of the space and they are able to commit to a 5 year lease.
Serviced Office Space
Start up businesses often prefer the flexibility and convenience of a serviced office and some larger, established companies now take serviced space for additional, limited term project space. Side by side – per square foot – serviced office space in London can appear to be more expensive than a conventional leasehold office. However, it’s important to remember that – unlike a conventional lease – this price is fully inclusive of most costs associated with the office. And aside from a deposit, there are no upfront fees.
Please download our Serviced Office versus Conventional Lease Cost Report to understand the different costs for conventional leases and serviced offices.
Freehold Office Space
You buy the property, either outright or with a commercial mortgage. This means you have an asset, an investment, rather than an expense. Of course you still have to finance this, either investing your own capital, or servicing a loan. As with a conventional lease, fit out costs, telecoms, furnishing, IT and business rates all have to be paid for.
During the rest of this post I will be breaking down the various costs involved in renting or owning office space. I will – wherever possible – point out when a cost only applies to conventional, serviced or freehold.
2. What are the one off costs that occur at the beginning of an office lease in London?
You will incur a handful of expenses either before you move into new premises or immediately afterwards. These costs will obviously fall outside your normal business costs, and will have an impact on your cash-flow. You’ll need to consider:
Fit Out and Interior Design
(only applies to conventional lease and freehold)
For example basic layout alterations – creating or removing partitioning, for individual offices, meeting rooms and open-plan space. Redecoration may be required. Image-conscious businesses will require more involved interior office design. Specialists may have very specific layout requirements. All of the above require consultation with and costings from professional experts. It may be possible to negotiate a rent-free period in return for upgrading the offices to your specifications yourself. It may also be possible to negotiate some of the upgrades as part of your lease.
IT and Telecommunications
(generally only applies to conventional lease and freehold)
All businesses now have some level of IT – some more complex than others. How many mains sockets, phone sockets and CAT5/5E/6 connections do you need? Will your space require a specific network cabling infrastructure. Do you need dedicated server rooms? Will these rooms need extra air-conditioning and/or ventilation? If you are expanding, will you need more capacity – more cabling, desktop computers, phones, land lines, larger servers, faster internet connection, more robust data backup. Again, it’s best to seek advice from the experts, to build in what you need both now and later.
How much are you bringing with you? Furniture, IT Equipment, Kitchen Appliances, Filing, Documentation, Reference Material, Pool Table!
(mainly applies to conventional lease and freehold, as many serviced offices provide furniture)
If you are not bringing this with you, or you are expanding, how many new desks and chairs do you require? Do you need sofas and tables and chairs for breakout areas, or meeting room?
Professional Fees and Taxes
(only applies to conventional lease and freehold)
Legal Costs, Surveyors Fees, Stamp Duty
(applies to all serviced office space and some conventional leases)
Serviced offices require you to sign a short licence rather than a lease. As you often only have to give a month’s notice to end the contract, you will be asked to pay a deposit.
For conventional leases – depending on the length of your trading history – you may not have to pay a deposit. Start-ups and young businesses will need to be aware of this probable cost however.
If you own or run a business, your time is very important. All of the above will eat into your valuable time, and cost you money. If this is your first time searching for office space, it’s tempting to think of it as much like a house hunt. Be warned: it isn’t! (You can find out why in my earlier post : One killer difference between house hunting and finding office space!) Researching office space for rent in London is a time consuming activity, particularly when you lack experience and awareness of the possible pitfalls and opportunities. Remember that your time is money.
3. What recurring costs do I need to be aware of?
All recurring costs – rent, rates, service charges and VAT are dependent upon the amount of space you have. We have a fantastic Office Space Calculator, that allows you to work out not only how much space you need, but also how much it will cost.
(applies to serviced offices and conventional leases)
(only applies to conventional leases and freehold)
A tax on business occupiers fixed by the Government (HM Revenue & Customs) and collected by the Local Authority to pay for local expenditure such as education, police, fire brigade and refuse collection. Business properties all have Rateable Values, which are used to determine business rates payable. A broad guide to business rates based in the London area is also included in our office space rental guide.
(only applies to conventional leases)
Service charges are paid to landlords or managing agents for office buildings with multiple tenants. The charge is usually expressed as a rate per square foot occupied (e.g. £8.00 per ft2 per annum). These charges cover services common to all occupants of the building – for example: Rubbish Collection, CCTV, Lightning Protection, Pest Control, Water Rates, Electricity, Lift and Roof Maintenance etc. I have blogged in detail about office service charges in London. Typical service charge rates can be found on our rental guide.
Most buildings are now VAT registered, so VAT is payable on the rent
4. How do office costs vary across London?
Location, location, location: I wrote extensively about this last year – How to choose the best location for your London office in 5 steps I doubt you’ll be surprised that – like house prices – office rental values vary dramatically across London. St James’s and Mayfair office space and are the most expensive in Central London; Waterloo, Silicon Roundabout and Clerkenwell are the least expensive. Our London Office Space Rental Guide indicates the estimated rent, business rates, service charges and hence the total annual costs across the major business districts of Central London.
5. How you can reduce London office costs, and save money
There are many ways to minimise your costs, and save yourself a lot of money. And this does not necessarily mean doing things on the cheap! Here are our top 5 tips to save yourself money on office space:
- Choose office space that has already been fitted out
- Choose recycled office furniture – or refurbish and recycle your own furniture
- Negotiate Business Rates – Rates should be checked, and if they are too high, can be negotiated down. Have a look at our top 6 business rates tips for new office occupiers for guidance. Speak to a specialist rates advisor if you need help with this.
- Negotiate Rent – Rent is also negotiable, particularly when demand is slack, and landlords have empty offices to let in London. Initial rent free periods are also available, particularly in exchange for upgrading or fitting out the property
- Don’t try to do everything yourself. It’s tempting to think that you can save money by doing all the work yourself. You won’t. Outsource whenever it makes sense.Your time is money.
Looking for office space In London can be an enormous drain on your time, resources and energy. We are biased, of course: we would always recommend that you use a commercial estate agent – such as Find a London Office – to find office space. Yes, you will have to pay an agent. However because we will save you time, and negotiate you the best possible deal, you will end up saving money. How do we do this? We have inside knowledge of the London office market which enables us to find options that you would be unlikely to find on your own. This not only widens your choice, which is always extremely beneficial, but also allows us to play each option against the other, and negotiate the best possible deal on your behalf. For more tips on minimising cost, see this blog post: 5 Ways to Save Money on Office Space in London
Researching office space for rent in London is very time consuming. Remember that your time is money
What is your budget?
Once you have decided on your preferred location, establishing your budget is critical to a successful search for new office space. We have broken down the initial and recurring costs of office space. We have explained that costs vary across London, and that different types of office space have different cost benefits and implications. Lastly we have discovered ways to minimise costs and save money. The Rental Guide and Office Space Calculator are excellent tools which will take the guess work out of working out how much you can afford.
If you need guidance making any of these decisions, we are here to help. A team of London office agents stand ready to assist you. Simply tell us what you are looking for and we will do the rest.
Coming soon: How much space do you need and what type of space do you need?
How big is your company? Are you a start up or an established organisation? How many people do you employ? Do you need open plan or individual offices? Do you need to future-proof your premises? How much flexibility do you need? How much control do you need? Do you have any specific requirements? Are you after a particular style of building or interior? All these questions answered and more…