Comparing Serviced Offices vs Leased Offices
To help you select the right option for your business, we’ve put together the definitive guide that compares Lease with Serviced, and a handy Q&A to help you get clarity on the best solution.
See our Q3 2023 Australian Flexible Office Space Report for more up-to-date insights on the latest Flex Office Market.
The appetite amongst business owners to secure new offices this year has been increasing by circa 20% MoM every month this year so far (based on the number of enquiries through Rubberdesk).
Prospective tenants often come with a wishlist that includes an emphasis on collaborative spaces and leaning toward high-quality fit-outs and facilities that best attract employees back to the office.
What tenants don’t tend to know is whether they should take a Lease on an office or rent a Serviced Office. Sometimes it’s a lack of information or understanding that leads to one option being ignored in favour of the other, or it’s Broker-Bias that decides the outcome.
Broker-Bias
When receiving a prospective tenant enquiry for office space, most brokers will turn to what they know best, and for most Commercial Real Estate Brokers that involve taking a Lease on an office even if a Serviced Office might be a better option. The same is true* of Serviced Office Brokers, but since they are by far outnumbered by Leasing agents there’s a considerable Broker-Bias towards Leasing over Serviced offices.
(*Exceptions to this (in our humble opinion) are Cadigal & Rubberdesk as the only Joint Venture between Leasing specialists and Serviced Office specialists)
So to help you select the right option for your business, we’ve put together the definitive guide that compares Lease with Serviced, and a handy Q&A to help you get clarity on the best solution.
- 4 questions to decide between Leased and Serviced Offices
- What is a Serviced Offices
- What are the Differences between Leased and Serviced Office Agreements?
- How do the Costs of a Lease compare to a Serviced Office
- Real World Cost Comparison of Leased versus Serviced Office
4 questions to help decide between Leased and Serviced Offices
The truth is, one option is not always better than the other. However, there are circumstances where one option will likely be a preference. And if there isn’t a clear winner then you should consider both options.
Using the chart below, ask yourself these 4 questions to help make the decision between a serviced or leased office.
What is a Serviced Office?
Serviced offices are operated by companies that specialise in building and managing great places to work. They typically take a long-term Head Lease over a number of floors of commercial office space from Landlords and fit it out so that discrete smaller offices can be rented by businesses on shorter terms.
These operators add value through good design, provision, and management of common services, meeting rooms, cleaning, and all outgoings. This makes it very easy for businesses to move in and focus solely on their business, without the hassle of also managing the office.
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What are the Differences between Leased and Serviced Office Agreements?
| Serviced Office | Leased Office | |
|---|---|---|
| Length of Term | Service agreements range from 3-, 6- or 12- month terms. The best prices are for longer-term rentals. Monthly rentals are available but these come at a premium. | 3 or 10-year lease terms are the norm. Any shorter and the fit-out costs become disproportionate. Longer terms carry better incentives. |
| Pricing | Quoted as an all-inclusive monthly rate per desk. (Meeting room usage is typically Pay As You Go. However, some Serviced Offices include credits for meeting rooms in the monthly cost). | Quoted as a Gross price per square metre per annum. Multiply the sqm of the office by the Gross price to get your annual cost. Price excludes fit-out, electricity, and internet. |
| Discounts / Incentives | Typically a number of months rent-free on the term of the agreement. The longer the term the greater the discount. | Typically a percentage of annual cost is given back to the tenant for the purposes of contributing towards the fit-out or as an incentive to reduce rent. |
| Bond / Bank Guarantee | Typically 2 months rent held in Trust. | Typically 6 months Gross Rent held in Trust. |
| Fitout | Included and ready to go. Options include changes to the furniture and layout. | Empty shell for you to build what you need. |
| Branding | You can often add your branding to your space, but shared areas are either heavily branded or completely unbranded - depending on the service provider. | You have complete control within your space, but common areas often remain unbranded. |
| Reception | Typically included and staffed, for clients to be greeted and packages received. | Build and staff at your expense. |
| Space / person | Average ~4.5 sqm/person. That’s based on the size of your private office. There are additional common areas and meeting rooms that aren’t included in that. In reality, it’s up to you. If you want more space then simply remove some desks. | Average ~10sqm / person. However, that’s the total net lettable area of the Leased office and includes meeting rooms, and a kitchen area. It excludes stairs, toilets and cupboards. |
| Services | Meeting rooms and printing are typically paid for on a pay-as-you-go basis. | Build what you need and then no need to pay for more. But you are also unable to use more space unless there is a shared space offered. |
| Renewal Cost | Subject to market. The price can go up or down depending on demand. You can of course renegotiate or move! | Options to extend can be defined in the lease agreement upfront. |
| Annual price increase | Service Agreements typically extend to a year. After that, it becomes a renewal. | Defined in the lease agreement and typically in line with CPI at ~4% per annum. |
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How do the Costs of a Lease compare to a Serviced Office
| Cost Item | Serviced Office | Leased Office |
|---|---|---|
| Monthly Ongoing Costs: | ||
| Rent | Quoted as an all-inclusive monthly figure. | Quoted Net of any other outgoings as a $ cost per square metre per annum. |
| Council and Government taxes, Water and Sewage rates, Strata fees, Land tax, Insurances, Property services - eg pest control and security, Property management fees, Maintenance costs (gardening, window cleaning, air-conditioning), Cleaning Tenant and Common areas, | Included | Additional (often quoted as outgoings) |
| One off Costs: | ||
| Fitout | Included | Extra |
| Make Good | Typically a predefined amount to cover cleaning | Cost to return to pre-fitout condition |
| Bond & Bank Guarantee | Y1-2 months Bank Guarantee. | Up to 6 months Bank Guarantee. |
| Services: | ||
| Internet & Wifi | Included. | Hardware and monthly service costs at your expense. |
| Gas and Electricity | Included. | Tenant arranges and pays. |
| Print / Scan facilities | Pay as you go. | At your expense |
| Meeting room access | Pay as you go for shared facilities or rent your own dedicated room. | Use what you have. |
| Reception services | Included. | Tenant provides and pays. |
| Other Costs: | ||
| Insurance requirements | Nothing over and above your legal requirement. | Typically $20m Public Liability + Plate Glass cover and named landlord. |
| Furnishings | Included or BYO | BYO |
Real World Cost Comparison of Leased versus Serviced Office
To provide a clearer picture of the key cost differences, we compared like-for-like offices in the same building and with similar quality fit-outs. In doing so, we assumed a team of 18 wanted the same-sized office to sit in.
However, for the leased option the team wanted a boardroom, a meeting room, and a kitchen included, while for the Serviced office they were happy to use the meeting rooms on a pay-as-you-go basis.
We've put together a comprehensive comparison for this case study here.
And that’s it! I bet you thought we’d ask what kind of vibe/community/beer on tap would you prefer, but that’s not what defines Serviced Offices and Coworking. Just like leased offices, there is a whole range to choose from.
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