Considering leasing an office?
Six questions to answer before you do
What am I signing up for?
Renting A-grade office buildings in good locations will usually require a six year lease and new buildings can be for longer. For high demand space, you will often need to guarantee payment of a lease for the full term, either with a personal or bank guarantee.
Then if you outgrow the building mid-lease or need to downsize before your lease ends, you remain responsible for the full term of your lease, for both rent and outgoings. If you move out, you will then need to find a sub-tenant and manage their occupancy, as well as finding and running a new office space.
Should you sell your business before the lease expires and your trade buyer doesn't want your office, you will be responsible for the office until the lease expires. And don't imagine you can walk away from the lease if there is no personal guarantee. As directors, to sell a company, close it down and take the capital gain, the directors will have to certify there are no contingent liabilities outstanding.
Commercial leases legally bind business owners to some serious fixed-cost commitments, some of them quite surprising to even experienced business owners and managers. You can read a first hand account here: Office leasing, lessons learned
Lastly, it would be prudent in a recession to consider a scenario where your business needs to downsize and cut costs. Fixed leases are designed with limited flexibility to give tenant and landlord surety of tenure. You can read here how badly things can go wrong for business locked into high fixed-cost contracts: Risks to consider with a commercial property lease
What's the real cost of renting a commercial office?
Generally, rent is only a third of the cost of running an office, referred to in the industry as total cost of occupancy or TCO. So doing your homework and understanding all the costs involved in renting an office is critical.
First consider how much space you need to rent. Allow for space like meeting rooms, kitchen/dining area, bathrooms, interconnecting spaces like hallways, receptions and collaboration spaces. Then you need to allow for growth during the term of your lease, typically 25% or more. Rule of thumb is you need 10 sqm per person.
In NZ, rent will likely be quoted as an annual $ rate per sqm. In Australia it is more usual to see the monthly rate quoted. The more corporate and modern the office, the higher this rate will be. A-grade offices are significantly more expensive than B or B- grade and harder to find. But right now, when retaining staff is challenging, the work location is as important as the work experience on offer. If you will need a bank guarantee to secure a lease, remember to budget this cost upfront .
Next, budget for periodic rent increases, and include your cost of having a valuation done at each rent review anniversary by a registered valuer, otherwise you will need to accept the landlord's rent appraisal which may be higher than the true market value. Maybe have a contingency amount for the worst case, where arbitration to agree a market rent increase can typically cost between $10K and $20K.
To read on, click through for the full blog article: True cost of renting an office
And checkout our financial analysis of occupancy costs in our: Office rental comparison
How safe is your rental office?
As a business owner or manager, it's easy to conclude the biggest risk within most offices is a nasty paper cut. But every office should have a comprehensive health & safety plan to eliminate or mitigate site hazards. Without such a plan, the directors, officers and building owner as person(s) conducting a business or undertaking (PCBU), will find themselves liable for any serious incidents on site.
Health and safety management requires a systematic approach and Worksafe NZ provide guidelines for businesses to follow. But every office building must also have an evacuation procedure and most (10 persons or more) will also require an approved Evacuation Scheme.
In some offices, the building owner will have organised the scheme and / or a site health & safety plan. In other stand-alone offices the tenant takes the lead, but all parties should be involved in identifying, documenting, mitigating and where possible eliminating hazards.
Then there are security risks, hazards that may not involve risks to people, but affect the property, the assets contained within and even the financial stability of the occupier. There are too many risks to cover here, but we have broken them down into a three-part series covering:
External threats to staff and business assets from vandalism, violence, theft and burglary
Internal threats, inherent in the building structure and design, from the likes of fire and earthquakes
Virtual threats from intrusion via the office IT network
As the articles are written, you will be able to link above to the articles, learning more about these threats and possible mitigation strategies.
We also touch on how a modern serviced office is able to deliver corporate safety and security standards, guarding against all three.
What amenities will be included in an office for rent?
Stand-alone small office rentals often have no amenities other than physical locks on doors, carpets, power, lighting, kitchenette and toilets. B grade offices often have no air conditioning, or an ineffective system with poor temperature regulation. Some staff will be too hot and others too cold!
Some small offices may share facilities with an owner occupier. Check there is fast broadband internet and Gigabit Wifi, and a fast printer/copier you can use. Is there meeting room space with enough availability? What reception capability is there for your clients? Is there a lunchroom/café for staff to use? How about showers and lockers for lunch time exercise?
Shared office spaces generally are set up to include nice facilities for organisations and their staff. Check what is included as many shared offices charge extra for some things like meeting room use.
Who will be responsible for fixing stuff?
It is important to discover who will be responsible when things go wrong. And stuff will go wrong, especially if you are looking at small B-grade offices. Usually the owner or landlord will be responsible for the structure and watertight integrity of the building including the roof. But it is common for the tenant to have to pay for repairs and maintenance inside the building and often the grounds too.
It's not uncommon in small office leases for the tenant to be directly responsible for arranging and managing internal building repairs. It pays to check how issues like blocked plumbing will be handled. It may sound minor but such faults can make the building practically unusable for staff until fixed. If your landlord is responsible but is absent overseas, you may be waiting a long time for resolution.
Serviced offices and shared spaces are generally well set-up for managing building issues and there will often be a community or building manager to organise contractors to come in and fix any problems that may arise. And the works invoice will be paid by the owner, not the occupier.
What is the best location for a rental office?
First consider the image you want to project: modern and corporate, or cheap and cheerful? Both are legitimate, but your office should be a good fit for your purpose, your brand image and market positioning. This, along with budget, will in most cases direct your search.
Proximity to where staff live, easy access to bike paths, bus routes and good parking are all important. But being where your industry or profession is grouped, and being near to, or convenient for your customers, is probably more critical.
Your business may benefit from occupying a high profile site. If not, be aware that such key sites will often command a price premium and it could be more cost effective to rent a billboard for this business exposure. But check out if there are signage opportunities on the building, if you do want customers to identify you with a particular location or building.
Consider too, what amenities are available in your desired location, things like cafes and shops for staff to frequent in their breaks. At a time when retaining staff is challenging, a move to an industrial area can cause great upset amongst office workers, and even lose you some of your most loyal and experienced talent.
If after reading this page you would like to consider a serviced office with no lease commitments, no guarantees needed, an office that costs you 50% less to occupy, and one that is fully managed so you can focus on running your business, we've made your search easy with our quarterly updated; List of Coworking Spaces in the Hawke's Bay
Or Contact Us directly for a personal tour of Hastings HIVE, a corporate serviced office space in a great central location.