When deciding whether to rent or buy office space there are many factors that will need to be considered. The choice will largely depend on the amount your business is able to invest in initial start up costs. There are also different types of office leases available which may be suitable for your specific business needs, another thing to consider when looking for office space.
The pros and cons of renting office space
The office rental market in the United Kingdom is huge, as this is the most popular option for new office set-ups. Although the conditions vary from city to city and even from contract to contract, it is possible to identify some common pros and cons that you should take into consideration if you plan on renting office space.
Firstly, renting an office has the short to medium-term financial advantage of not forcing you to invest most of your capital into buying a commercial property. Although paying a security deposit upfront is still required by landlords, the amount needed will never come close to how much you would need to pay if you were buying. In addition, office leases tend to include rent-free periods, whose length tends to increase according to the duration of the lease. For example, a 12-month lease would typically include a 2-month rent-free period.
Flexibility is another advantage of rented office space. A particular office that currently suits your businesses needs, might not always do so. Companies grow and downsize. Neighbourhoods change and they might become an unsuitable office location. In situations like these, finding a more appropriate office location will be easier if you rent.
The main disadvantage of renting office space concerns rental increases, which can turn one of the main expenses of your business into an inconvenient variable. To minimise this downside, ensure that you agree with the increase clause of your rental agreement, and if you are unhappy, negotiate.
Buying office space: advantages and disadvantages
Buying office space affords a large degree of freedom. There are often few or no restrictions on the assignment or the use of space, so you can effectively redesign or modify your office as you please. This will allow you to conveniently match your business development plan to your office space. In addition, if you choose a fixed-interest mortgage rate, it will be easier to estimate your monthly expenses. However, buying an office requires a large initial capital investment, so start-up costs will be invariably higher.
Understanding the differences between the types of office lease options
If you choose to go for the rental option, it's important to be aware of the two main types of lease options available in the UK.
Conventional leases give access to empty office space that will need to be equipped with office furniture, telephone lines, and other basic facilities. This means that immediate occupation might not always be possible, potentially resulting in a loss of productivity. You must also budget for insurance and maintenance fees. Lease terms tend to range between 5 and 10 years, so this can be a risky option for start-ups. However, monthly fees tend to be lower than in the case of flexible leases.
Flexible leases (also known as serviced office space) differ from conventional leases mainly in terms of flexibility. You can rent a serviced office for just one month if that is what your company requires. Additionally, flexible lease fees include the use of office equipment like desks, computers, copy machines, and telecommunications infrastructure. However, serviced offices may end up being a costly option if you plan to use them long-term.
Deciding whether to rent or to buy office space is not a decision that can be taken lightly, so it is always wise to take time weighing the options and to look for professional advice if required.