smallbusiness.co.uk: Helping your business think big

Moving offices will test your financial skills and your ability to forecast how the company is set to grow.

Charles Black, chief executive of software-as-a-service specialist Nasstar, says local transportation is a major consideration when choosing office space: ‘If you recruit new people, things like that can make the difference. However, for the service we provide, we don’t need a large office so the rent is reasonable.’

Black, who has a background in law and has a chartered surveyor for a father, conducted discussions over the lease by himself. ‘The landlord wanted £19 per square foot and I got the rate down to £15 per square foot,’ he says, noting that he was in the stronger position because he knew the office space had been vacant for a number of months.

Property expertise

Andrew Pegg, managing director of Midas Corporate Consulting, an independent property adviser, comments that business owners ‘need to be aware of the opportunities that are out there to tinker with agreements’.

Property leases in the UK are, says Pegg, a lot less flexible than in Europe, notwithstanding the new Commercial Lease Code introduced in March 2007, which states that break clauses should not carry a penalty.

‘You want to be sure that the code is in the agreement,’ says Pegg. ‘One of the issues that people are experiencing is that the landlords know the new code is there, as do the agents, but they don’t abide by it because they want to get the best deal.’

A lot of people are taken aback by the cost of dilapidations in a commercial lease. Robert Hamilton, CEO of Instant Offices, which acts as an agency for serviced office providers, explains: ‘Unlike a domestic lease, every commercial lease requires that you restore an office to the state it was in when you first became a tenant.

‘That can be quite a hefty capital commitment at the end of your term, where you might have to recarpet and refurbish the premises, taking away everything you have installed, like your IT and cabling. That can easily cost at least £25,000 for a relatively small office of 25 to 30 people.’

Another catch often overlooked relates to the service charge paid for the upkeep of a building. ‘If you take on an office and there’s a problem, the landlord will deal with it, but it’ll still be paid for by you through the service charge,’ says Hamilton.

Working on the move

For Pegg, the core issue is judging what your organisation is trying to achieve and the space needed to meet that objective. The internet and advent of mobile working mean that you may not require as much space as you think you do.

‘Certain departments may not need permanent desks, such as a sales team, while departments like IT and finance certainly will,’ he says.

Nasstar’s Black agrees. ‘Technology means there is more flexible working,’ he states. ‘We have an employee who lives in Hampshire, works from home and pops into the office one day a week.’

At your service

If you find such upward pricing pressures and long-term commitments a little daunting, it might be worth considering serviced office space. The benefit of such an option is that you should be able to upscale or downscale the space you require with relative ease, unburdened by concerns about telecoms, furniture, utilities and cleaning costs.

Tim Worboys, sales and marketing director of serviced office provider Stonemartin, says: ‘Overheads are a drain on a company’s cash flow. Increasingly, finance directors are saying to their MDs or HR directors: “Sorry, I’m not approving your moving spend of £2 million to £3 million because it’ll hit the P&L too hard and damage the business’ growth.”’

That isn’t to say that going for serviced offices is cheap. Worboys says that the typical price in one of its regional centres is £600 per workstation for ten people or under, and that’s for a 12 to 18-month period.

If you don’t want all the trimmings that come with a serviced office, but desire the flexibility in tenancy agreements, then you can look at a managed office space. ‘If you’re taking a managed deal with us, you’re probably seeing a discount of 15 per cent and 20 per cent, based on an 18 month-plus term,’ says Worboys.

The latest variation on the formula is the shared office, which has just been introduced by Stonemartin. ‘Clients can share the environment they use,’ says Worboys. ‘It’s like compartmentalising an airport lounge so it becomes a business space. It’s a new concept and will reduce costs for clients by a further 20 per cent [when compared to renting managed space].’

Midas’ Pegg detects edginess in the market. ‘Businesses are reluctant to move and are managing their cash. The ones that are moving are the ones that have no choice but to go elsewhere,’ he says.

Good deals

Bargains can be had if you give your move sufficient care and attention, and don’t be afraid to ask for a ‘rent-free’ period when signing an agreement be it for a serviced office or standard commercial lease.

‘For some managed deals of a term that’s for three years-plus, we would offer a prospective tenant a period where they don’t pay rent,’ comments Worboys. ‘It could be two to six weeks, depending on the agreement that was signed, or nothing at all.’