The Hidden Costs of Office Space: A Beginner’s Guide

When people talk about the cost of office space, they are usually referring to rent. And yet there is a lot more to it than that. When I talk about the hidden costs of office space, they are not literally hidden, but simply expenses that you may not immediately factor in when acquiring office space. But in order to budget accurately, you must take them all into account at the outset.

Reading through the list, you may think “I knew about that” but there will invariably be one or more that you are not fully conversant with. I’ve divided them into serviced office costs and leased office costs, as the two are really quite different.

They are not literally hidden, but simply expenses that you may not immediately factor in when acquiring office space

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The Hidden Costs Of Serviced Office Space

With serviced offices, the rent that you pay typically includes just about everything that are extras when you take space on a traditional lease basis. But do keep an eye out as there can be additional costs that the serviced office operator must make clear at the outset. Items to watch out for are:

• Customisation of your space: if you want your space partitioned in a particular way, the operator is more than likely to charge for this. Quite possibly, they’ll also charge for taking it all down and making good when you leave.
• Making good when you leave: even if you just take space in its original configuration, the operator will want payment for redecorating the walls and maybe steam cleaning the carpets at the end.
• Meeting room usage will be charged as extra.
• Telecoms and internet service may be charged as extra.
• Other services will be charged as extras. e.g. postage, secretarial, catering.

That’s about it. However make a note to ask the provider “Are there any other extra costs apart from the rent?” before you sign the licence. Then you know where you stand, with no nasty surprises.

Always ask your serviced office provider if there any other extra costs apart from the rent, before you sign the licence. Then you know where you stand, with no nasty surprises.

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The Hidden Costs Of Leased Offices

In contrast, leased offices have extra costs aplenty. The rent that you agree to pay is merely the starting point. I have divided the costs up into those you incur at the outset – before you take occupation – and the recurring costs during the course of the lease.

Initial Costs of Renting a Leased Office

• Legal Costs: You will need a solicitor to agree the lease terms for you. These terms do need to be dealt with in some detail – otherwise they can come back too bite you later on!
• Stamp duty is payable on the lease.
• Agent Advice: The majority of tenants take on a market-experienced agent to find their office and negotiate the lease with the landlord. An agent will not only save you time but also has access to all of the market opportunities that may not be apparent to you. At Find a London Office we calculate that if you add the time saved to the monetary savings on the deal, it is very cost effective.
• Building surveyor: You need to make sure that the space is in good condition and doesn’t have any hidden liabilities that could become your problem.
• Fit-out: If you have a clear idea how you want the space partitioned and decorated, you will need an expert in this field to make it happen
• New furniture
• Installation of IT infrastructure
• Moving costs:Hiring a removals company.

An agent will not only save you time but also has access to all of the market opportunities that may not be apparent to you. We calculate that if you add the time saved to the monetary savings on the deal, it is very cost effective.

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Recurring Costs of Renting a Leased Office

• Rent: expressed in the lease as “per annum exclusive”. Meaning “per year” and it really is exclusive of everything! Note: VAT is charged on the rent.
• Service charge: assuming your office is in a building with multiple occupation, the landlord or their managing agent will run the building in the required manner – e.g. lifts, heating, air conditioning etc. They will make an estimated charge for these anticipated costs on a quarterly basis to recoup the costs based on the percentage of the whole building that you occupy. At the end of the service charge year, they will calculate the actual costs and may well bill for the excess costs not collected to date. And again VAT is charged on these costs. Like everything in recent years, the costs of these services have escalated dramatically. Have a look on our London office rental guide for typical costs in each area of London?
• Business Rates: payable directly by the tenant to the local authority – usually on a monthly basis. Your solicitor can provide the actual cost figure.
• Water rates Who is responsible for this cost varies from building to building. You might pay the supplier directly or it may be included in the landlord’s service charge (see our Rental Guide).
• Utility bills: These are paid for in the normal manner, unless heating or air conditioning is provided from a central plant within the building, in which case this would be included in the service charge.
• Telecoms, Internet, data sources and indeed any other service providers that you engage with will need to be taken into account.

Final Thoughts about the hidden costs of office space

The above constitutes the main hidden costs of office space, but there may be further costs to consider dependant on exactly what space you take and on what basis. It is best to make a thorough list of the above and then add any extra cost elements that are specific to your property arrangements or the way in which your company operates.

And a footnote: inflationary pressures mean that costs have escalated a great deal in the last few years so it is very wise to pay particular attention to the cost of service charges and business rates. These two costs make up a substantial part of your overall recurring occupational costs.