Different Types of Office Spaces
If you’re thinking about moving office in 2023, one of the things you’re probably thinking about is what type of office space is best for you. Moving office is a big investment in your company’s future, so it’s essential that you have the right type of office to maximise the performance of your people and company.
You’ve probably heard about the 4 main options when it comes to office space: coworking, serviced, lease, and freehold. However, with so much conflicting and biased advice, it can be difficult to know what each one actually is, let alone which one is best for you.
At Zentura, we regularly receive enquiries from companies looking for help with their workspace strategy. The type of office space they need is often one of their first questions. We’ve worked on office relocations and fit outs for companies in both leasehold and freehold spaces. We’ve also done a lot of projects in coworking spaces and serviced offices. As a result, we have a detailed understanding of the benefits and drawbacks of each, and which is the best option in different situations.
In this article, we’ll go through exactly what each option is, as well as the advantages and disadvantages of each. We’ll then give a few example scenarios to help you make your own decision.
Coworking Space
What are Coworking Spaces?
Coworking spaces are large communal offices shared by multiple different companies. Owned by a coworking space provider, individuals and companies can hire private offices, company offices, or shared desks on a per-person basis. A relatively new workspace model, coworking has risen in popularity over the last 20 years.
Coworking has traditionally been aimed at start-up companies that value the ability to grow easily and network with similar companies. However, the pandemic has made coworking spaces much more attractive to more traditional companies, as it provides much more flexibility in a time of uncertainty.
Coworking Spaces Advantages
The major advantage of coworking is the flexibility that it offers. Few co-working spaces require you to commit to a long-term contract. Instead, you can use flexible pay-as-you-go terms, often on a rolling monthly or quarterly contract. This means you only pay for the space you need.
For small companies, coworking can also be more cost-effective. Unlike lease or freehold, there is no capital office fit out cost to prepare the space before you move in. This means that for small spaces or short-term use, the higher monthly cost is actually cheaper over the period you are using the space.
Networking is also a major advantage of coworking spaces. Coworking spaces tend to be occupied by companies of a similar size and industry. This makes it easy to meet and collaborate with like-minded professionals. This is especially useful for small teams of 10 staff or less who may not have much in-house expertise.
Coworking Spaces Disadvantages
Due to their open-plan designs and communal nature, coworking spaces have poor privacy. This may be especially problematic if you are dealing with confidential or proprietary information. Private spaces may be available for temporary or permanent use, but this negates many of the advantages of coworking spaces.
Another disadvantage of coworking spaces is that you can’t brand your office. Workspace can have a big impact on your culture, and a branded space that brings your company’s personality to life is a big part of that. In a coworking space, the design is often generic to suit multiple different brands, making it less appropriate for yours.
The layout of a coworking space is also largely fixed, and you probably won’t be able to adapt it (unless you hire your own private space). For example, if you discover your coworking space doesn’t have enough private areas, there’s not a lot you can do about it.
Serviced Office
What Are Serviced Office Spaces?
Serviced Offices are small private offices that share common facilities like breakout spaces and receptions with other offices in the same building. They are managed by a serviced office provider, who owns the whole building, renting smaller offices out to other companies. Serviced offices house 2-20 people, and provide a company with its own private space.
Serviced office space is a much older workspace model, that has been around since the mid-20th century. Popularised by barristers (known as barrister’s chambers), they are now common for small services firms, especially in large cities like London.
Serviced Office Advantages
The biggest benefit of serviced offices is their convenience. The space is already fitted out, including furniture, so you can move straight in and start working. Given that rental agreements are much simpler than leases, they are also a lot quicker to arrange. However, you still have more negotiating power than with coworking spaces.
Another advantage is the flexibility compared to lease or freehold office space. While not as flexible as coworking spaces, serviced offices typically operate on a quarterly or annual rental basis. Many serviced office providers will also allow you to make adaptations to the space, such as installing signage or adding/ removing executive offices.
Serviced office space is also very simple to manage. There is one monthly payment to make, and it covers a whole host of services that you don’t get with co-working, such as managed receptions and IT support.
Serviced Office Disadvantages
While more flexible than a coworking space, you still have a limited degree of customisation compared to lease or freehold workspace. You will not have any control over the design or layout of the common areas, such as the breakout space.
Serviced office space can also become very expensive over the long-term. Serviced offices are 50-80% more expensive per square foot per year than leased office space. Over time, the fixed costs involved in setting up a leased office become more cost-effective.
Leased Office
What are Leased Office Spaces?
Leasing is by far the most popular option for office space in the UK. Leasing involves renting directly from the building landlord on a per square foot, per year basis. The leased space is only used by your company, and you have almost complete freedom to design & build your workspace as you wish.
Leasing usually requires you to sign a contract of between three to ten years. The lease cannot be broken by either you or the landlord without the other’s consent. Generally, there are 1 or 2 pre-agreed points in the lease when either or both parties can terminate the lease without penalty.
Lease Office Advantages
Leasing allows you a lot more control over the design and branding of your space than coworking or serviced offices. You take on the space in a Cat B state and need to do an office fit out to make it ready to move in. This means you can design and build the space to meet your specific needs (as long as the landlord approves the changes).
The longer-term nature of leasing office space also provides a lot more certainty than shared office space. Leases typically last 3-10 years, and often require at least 12 months’ notice of termination. This means you are not always having to plan your next office relocation. You can invest in your current space, knowing you will be there for years to come.
Another advantage of leasing is the cost-effectiveness over the long term. Once you have fitted out your new office, you no longer have to pay rent to your shared office provider for all the amenities within it, such as furniture. As you deal with the running costs yourself rather than paying your shared office provider to manage it for you, this is also cheaper.
Leased Office Disadvantages
Despite the relatively low ongoing costs, leasing your new workspace will involve several upfront costs. Many leases require a deposit of 6-12 months. In addition, there will be the cost to fit out your new office space, which can cost £40 to £85 per square foot.
Leases can also be a lot more complex and time-consuming to negotiate. Many shared office contracts are on standard terms, perhaps with a few small amendments. Leases, on the other hand, require expert legal assistance and extensive negotiation to get the best possible terms.
When leasing your office space, you also have to manage a lot more of the daily operations than in a shared office. You’re responsible for all of the utilities, cleaning, maintenance, and everything else. If anything breaks, you are responsible for fixing it, rather than speaking to your shared office provider.
Freehold Office
What are Freehold Office Spaces?
The least common of the 4 main ways to operate your office, freehold involves owning the building outright. As the exclusive owner of your office, it is your asset and you can choose if and/ or when to sell it and move out at your own discretion.
Freeholds are rare in urban areas, especially large cities such as London, due to very high property costs that are not affordable for many companies. They are rarely suitable for new or growing companies, as they require significant capital investment that could be used to fund growth. However, for more established businesses in stable industries, freehold workspace could be a good option.
Freehold Office Advantages
The most significant advantage of owning your office outright is that it becomes an appreciating asset, rather than an expense. Property prices consistently increase in the UK, and London rates have increased 181% in the last 5 years.
Another advantage is the lack of monthly payments required for your workspace once it has been purchased. In fact, spread over 15 or 25 years, the monthly cost of owning your property is equivalent to renting. In addition, you also have a valuable asset.
Unlike leasing, owning a property freehold gives you complete control over the space. This means that the only approvals you have to seek for office refurbishments are building control and planning permission if applicable.
Freehold Office Disadvantages
Unsurprisingly, the major disadvantage of freehold office space is the upfront cost. Commercial space in London will cost £70-£135 per sq/ft per year, to lease. To purchase equivalent space would cost £1,000-£2,500 per square foot. For many companies, such capital is better invested in business growth.
Owning a property also makes you solely responsible for maintaining that property. In a lease, your landlord will still be responsible for all core facilities as well as utilities like HVAC. With a freehold office, that is now your responsibility. Ensuring all facilities with the space remain fully operational can require a lot of time and effort.
While freehold means you can decide to move whenever you want, it doesn’t mean you can move whenever you want. Unlike a lease, where you can move out at a pre-agreed point and leave the office unoccupied with extra costs, you would have to sell one office before moving to another.
Which Is Best For Me?
At this point, you're probably thinking “all of that was very useful, but it doesn’t actually say which is the best option”. Unfortunately, that’s because there is no one best option. It depends on your circumstances and plans for the future.
The key considerations are size, flexibility, and cost. If you are a small company, then the smaller size of shared offices, as well as the improved flexibility and lower upfront cost will probably make either coworking or serviced office space the best option for your business. If you are a medium-sized business of 50-250 staff, then a leased office is probably best for you, because it provides you with a greater degree of control and certainty, whilst still eliminating most capital costs. If you are a medium or large stable company with little growth, then a freehold office is worth considering, because it turns office space from an expense into an appreciating asset, despite the upfront cost.
Want to learn more about leasing office space? Check out our article, How Much Does It Cost To Lease Office Space In London? To help you find the right space for you, we’ve compiled a detailed look into what office space in London costs, as well as the key questions of what affects office lease costs and how much space you will need.
For a more detailed breakdown of office relocation costs, check out our Cost of London Office Relocation in 2022 analysis. There, break down everything you need to know about how much your office relocation project will cost, including finding a new space, survey & legal costs, dilapidations, design & build, and the relocation itself.
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