Conventional or serviced, that is the question?

With property and space related costs ever on the increase and being fuelled further by the rising cost of fossil fuels (electricity and petrol/diesel) finding the right solution for your business is becoming increasingly important. Luckily businesses are spoilt for choice these days with options ranging from remote or shared services on the one end of the scale, to conventional on the other. The choice does often make it harder to decide what is right for your business so here are some hints on how to approach the search and what to look for when presented with options.

Considering that space contributes about 20 per cent of your annual overhead, it’s a big number and as such important to make sure that what you decide on works for you, and by ‘work’ I mean more than just the right address and space planning. Obviously those elements are important but I/we always consider other features like safety and security, convenience to public transport, local amenities, traffic issues, access to arterial routes, failover power (generators), green building considerations and generally who else is in the hood, and then finally we turn our attention to maximising efficiencies, flow and ergonomic factors. But the question we are addressing today is Conventional versus Serviced or Co-working.

It’s fairly simple…

Conventional space is typically defined as a medium to long term arrangement where the tenant is required to sign a lease, provide security (usually based on 3x the last month plus 15%) and cover expenses like municipal rates and their portion of the building operating expenses. The rental rates (based on Rand per metre squared) and term of the lease will vary greatly depending on the location, grade of the building, demand in the area and the perceived ability of the tenant to fulfil their obligations. Something to take note of is the difference between net lettable area (NLA) and gross lettable area (GLA). As a prospect one would typically focus ones attention on the NLA because that’s the area that you need to operate your business but bear in mind that the landlord will see this differently – they only ever look at the GLA, meaning that they will factor into the rental equation your share of the common areas (lobby, stairs, ablutions etc). The result is that you will always pay more than you are initially led to understand.

Conventional space is usually attractive to more established businesses who have reached a point where they can take a longer-term view on their space requirement or they rely on their space to attract their customers. For these businesses the ability to commit to longer terms works well and will be a key part of their strategy. They can personalise their space with branding and tailored fit-outs. They will maximise opportunities to include features that differentiate the business in the hope that it will attract a niche client or a certain type of employee. They have the freedom to nurture, evolve and expand culture and brand awareness in an effort to improve productivity and staff engagement.

So how do I start to prioritise my decision? Here are some points to consider;

  • your short- and long-term growth plans
  • your budget
  • the size of your team now and in the future
  • privacy and control of your environment
  • the need for ‘other’ spaces like conference, meeting or boardrooms, storage etc
  • access from a security perspective
  • access from a disability perspective

Whatever your need for conventional space is at the end of the day it provides the business owner with a place to cherish and be proud of. It sends a message to the market saying, “we’re accomplished”. It’s a place to show off – success, culture and ideals. It’s a place to call home!

Not quite what you are looking for? Read on to find out what the serviced office community has to offer by comparison…

There are a lot of hybrid varieties in the in the “space as a service” category but in this blog, I’m going to focus mainly on the difference between conventional space and traditionally serviced office space. For those of your learning about this concept for the first time it will be hard to believe that it’s not new, hence ‘traditional’ – the concept has been around since the 1960’s. So, what is a serviced office? Think hotel’s, but for business. Simply put they are a place where businesses can move-in, plug and play and enjoy all the benefits one would normally associate with corporate spaces but with the freedom to choose how much and for how long.

Serviced offices, sometimes referred to as managed offices, are defined as; furnished and fully equipped offices available for short-term, or long-term agreements, located in a building managed by an operator.

They relieve occupiers of the significant capital expenditure associated with setting up conventional leased offices and allows the flexibility to grow or contract your space to suit your requirements – perfect for businesses that are just starting up, growing quickly, working on short term contracts or simply don’t know what their headcount is going to be over the next 12 months.

The hard facts, the misconceptions and the hidden benefits ….

Let’s not beat around the bush, the serviced office operator is a business and as such driven by profit. Fundamentally these providers apply the same thinking as one would when securing conventional space with sole purpose of making the space attractive and user friendly for the consumer business (you). In return for this risk they strive to make money and thrive. The benefit to this arrangement is that they will endeavour to look after you and to make your stay a good one. Your job is to find the right partner to deliver this to you.

A common perception is that serviced offices are expensive and indeed some of them may be. In saying this, when you consider that most of what you will need to operate your business has been factored into the proposed rate, they are for the most part very competitively priced. The model works by leveraging economies of scale and maximising densities. The effect is that the provider can on-sell the space and services at affordable rates to the user (whilst still making a profit). The downside of this is that the spaces can feel small or cramped but bear in mind that one still has access to all of the common areas and other benefits of the space like boardroom and meeting rooms – usually on a pay as you go basis.  The upside is that the user is not exposed to any capital, long-term contractual or surety risk. In other words, the business owner is free to invest this money in the growth of their business.

What is important is understanding exactly what’s included and what’s not. Agree it upfront and make sure it’s recorded in your agreement. It is not uncommon to hear of users finding that either they are being billed for something that they haven’t agreed to or simply that they haven’t managed their usage properly and find that the costs for extras like a dedicated line (faster internet), printing or extra meeting room hours add up really fast. It’s a bit like tucking into the mini bar!

And now to the good stuff…

Most will be furnished, have high spend internet and home to high quality equipment. There’s nothing to be installed, its ‘turn-key’ for the user, you can get straight to work! These spaces are manged by trained staff who will be at your service (at no extra Human Resource costs). The need to budget for or reconcile all the monthly expenses is gone. The essentials like internet, maintenance, cleaning or consumables are all covered in one monthly bill. Some spaces will have (at an extra cost) barista coffee and light meals. There’s no need to feel isolated or lonely, these areas are designed to create a sense of community, users are encouraged to mingle and develop a sense of being part of something bigger. These spaces are typically available to in-house clients as well as virtual or remote users. Taking it up a level, these days, hosted networking events are commonplace. These tend to range from informal ‘meet and greets’ to thought leadership speaker events. Along with this sense of community comes the spreading and sharing of ideas and whilst most serviced office providers encourage this interaction, it is more commonly found in coworking facilities that are designed for collaboration (I’ll save these differences for another blog).

So if I’m looking for a serviced office provider here are a few things I would consider

  • which location/s is best for me – spoilt for choice, you can test different markets in different locations without any long term risk
  • the degree of flexibility – short-term agreements are designed to help business remain agile. Expansion or contraction is normal and is available at short notice (typically a month or 2)
  • what’s included in the price – tailor something to suit your budget
  • is there any capital out lay (CAPEX) – not normally, enjoy access to designer fitted out and furnished spaces
  • who’s who in the community – you can mix with like-minded professionals and entrepreneurs in a viby environment!
  • who will be looking after me – remember that you will be ‘living’ with your provider so its important to know that you will all get along
  • what other facilities are on offer – ‘extras’ like wifi, kitchen (some include the tea and coffee) & toilets are usually included, if they aren’t, find out what the extra costs are.
  • How long will it take to get up and running – once the paperwork and security deposits are paid up you can move in within a day or 2 sometimes sooner.

Ultimately, it’s a matter of what is the best fit for your business right now and how this plays out in the foreseeable future. Can you take a long-term view and afford a bespoke solution, or do you invest your capital into your business and not someone else’s real estate?

Here is my summary of the Pro’s and Con’s

Serviced

Pro’s:

  • minimise upfront capital expenditure
  • short term solutions with maximum flexibility
  • space-as-a-service with hassle-free property management
  • simple, single invoicing, off balance sheet solution
  • lean HR resources allowing the team to focus on core business

Con’s:

  • forfeit brand identity by leveraging off the providers location and technology
  • tailoring beyond what is provided is limited
  • noisy or busy neighbours
  • agreements typically allow the operator to move you around which

Conventional

Pro’s:

  • scope to predict requirements over the longer term
  • complete control over the brand, identity, design and culture of the space
  • control over use and management of space
  • lower long-term costs and overheads
  • privacy allowing you to escape from noise and distracting

Con’s:

  • deals take much longer to conclude
  • high capital expenditure for fit out
  • capital expenditure for reinstatement on termination
  • management intensive
  • responsible for service charges, rates and utilities
  • important to accurately forecast
  • substantial rent deposit is often required to satisfy the landlord’s perceived risk of defaulting