Cheap Rent, High Total Cost? Office Occupancy Costs Explained

Low office rent can look like a triumph. You negotiated hard, used accurate information about deals that have actually been done and secured a good figure. But office occupancy costs explained properly reveal that rent is only one part of the bill.

Then the other costs arrive: Business rates, service charge, fit-out, insurance, furniture and staff facilities can all add a substantial amount. Staff facilities, in particular, are becoming a much bigger issue and can be costly.

Add everything together and what looked like a cheap office can become quite a high figure.

So how can you bring the overall cost down?

Why cheap rent does not always mean a cheap office

Rent is the most visible figure, so naturally it gets most of the attention.

Negotiating it properly matters. But a strong rent deal can quickly be undermined by a service charge that is allowed to rise unchecked, an expensive fit-out or furniture bought at full commercial prices. The problem is rarely one enormous surprise. It is usually several reasonable-looking costs which become unreasonable when added together.

Office occupancy costs explained – where the money goes

The main costs normally include:

• Rent
• Business rates
• Service charge
• Fit-out
• Furniture
• Insurance
• Utilities
• Staff facilities
• Moving and professional costs

Some of these are fixed. Others can be negotiated, reduced or avoided with a little forward planning. The important thing is to look at the full cost before agreeing to the office, rather than concentrating on the rent and dealing with everything else later.

Control the service charge before it controls you

Service charges cover the cost of running and maintaining the building. This can include reception, lifts, security, cleaning of common areas, repairs and management. If the service charge is not restricted and the managing agent is simply left to spend what they choose, it can soar.

The existing level of service charge should be identified at the outset. You should also ask what it covers, how it has changed in recent years and whether any major works are planned. Where possible, increases should be limited by a specific figure or percentage.

The landlord may not like it, but bad luck. A tenant needs some protection against costs it cannot control. Not every landlord will agree to a cap, but it should at least be raised and negotiated rather than ignored.

Do you really need a brand-new fit-out?

A smart fit-out can cost a massive amount of money. It is easy to assume that every office needs to be stripped out and rebuilt. Often, it does not.

There are usually offices on the market that have already been fitted out. Quite often, the existing layout is exactly what you want, or can be made suitable with a relatively small amount spent on alterations.

Taking a previously fitted office can reduce the upfront cost, shorten the moving process and avoid a great deal of waste. It may not be perfect, but perfect can be extremely expensive.

Office furniture can be expensive – until nobody wants it

New office furniture always seems excessively expensive. Even the everyday flat-pack type can cost a surprising amount.

But office furniture that nobody wants any more can have an extraordinarily low value. Good-quality desks, chairs, meeting tables and storage can often be sourced second-hand or refurbished for far less than the new price.

You may need to be flexible about matching ranges, colours or brands. But sensible sourcing can save a good amount of money without making the office look cheap.

Look at the total before agreeing the deal

The cheapest rent is not always attached to the cheapest office. A slightly higher rent in a fitted, well-managed building may result in a lower total cost than a bargain office requiring extensive work, new furniture and expensive staff facilities.

Before committing, build a full occupancy budget. Include every likely cost and add a sensible contingency.

Office occupancy costs explained clearly are not especially complicated. The difficulty is making sure every cost is visible before the decision is made.

Negotiate the rent hard, certainly. But also control the service charge, consider fitted space and avoid paying full price for everything simply because it is labelled “office”.

A low rent is still a good result. It just needs to be part of a good overall deal.