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True cost of renting office space revealed

Updated: Aug 4, 2023

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.


Mat Arcus, managing director of Maxims Accounting (practice) in Hastings agrees. "We looked at the monthly costs before sign-up, and ran some numbers along the lines of the worksheets on the HIVE website. It is surprising how much leasing an office costs and how much is hidden in general expenses. We definitely saved money being in the HIVE..." Click here to read the full story


 

So, first consider how much space you will need to rent. Allow for space like meeting rooms, kitchen and 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 if you are signing a longer lease.


A general rule of thumb is you need about ten square metres (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-minus grade and increasingly they are harder to find.


Don't be tempted to sacrifice office quality if retaining great staff is challenging for your business. For many people, where they work is as important as the work experience on offer. You may find it hard to retain your office staff used to working in town, if you take space in an industrial area bereft of amenities and eateries.


But then A-grade offices, for many businesses will require a personal guarantee from a director, or a bank guarantee to secure the lease. So remember to budget this cost upfront if you are using a bank guarantee.

Next, allow for periodic rent increases, and include with this the cost of a valuation by a registered valuer, at each review in which the rent is not pre-determined in the lease. Without this step, you would need to accept the landlord's rent appraisal which may be higher than the true market rental value.


And allow a contingency sum for an arbitration process to settle a periodic rental review where agreement can't be found. This usually costs somewhere between $15 and $25K, but can be more. Such a process will be out of your control and at the discretion of an appointed arbitrator.

Unlike residential renting, you will be paying the landlord's outgoings on the building. Outgoings are things like building and income protection insurance, local and district rates, water rates, building maintenance and grounds upkeep, air conditioning servicing, smoke and fire alarm testing and building warrant of fitness costs.


There can also be management and/or body corporate fees to pay. And you may need to fund periodic upgrades to the building like painting and re-carpeting. It pays to check out who will foot the bill in any proposed lease document.


Next, forecast your own office running costs (OPEX) during the lease. Include in this your office setup items like legal fees, negotiating the lease, funding some or all of the fit-out or refurbishment costs. Allow for some soft furnishing to create the right office environment for staff and customers.


Then you need to add moving in costs, including your management team's time, and ordering, implementing and integrating power, IT & networking on-site.


Next budget the actual monthly power usage, plus your office, kitchen and bathroom supplies. And offices don't manage themselves, so you need to cost in your time for managaing, accounting and supervising the building, supplies, network/IT and utilities. The older the building the more time you should allow for management, possibly 4 to 5 hours a week across your departments.


Security monitoring, a rental agreement covering printer / copier provision and running costs, IT & networking support, network maintenance & network security, broadband fibre rental and internet connectivity are substantial costs which have risen sharply, under recent inflationary pressure.


Remember to allow for office cleaning, plus rubbish and recycling removal. Also plan for one-off costs like graffiti removal, vandalism, break-ins and breakages - all tenant responsibilities AND annoyances.


Finally, allow for exit costs at the end of your lease, there may be make-good costs over and above "fair wear and tear".

In a shared or serviced office space, or coworking space, the rent, outgoings and almost all of the OPEX items above are usually covered in your monthly fee. And you probably will only need one third of the office space, because you share facilities like meeting rooms, with the other users.


You can check out our analysis of occupancy costs in our: Office rental comparison

 

You can follow our blog series to discover the other key areas to consider when leasing.

Or link to our Office Rental "Q&A' page for the summary information.


And if, after reviewing this blog, you would like to consider a serviced office, we've made your research easy with our quarterly updated: List of Coworking Spaces in the Hawke's Bay


Or do please Contact Us directly for a personal tour of Hastings HIVE, a large modern, high-tech serviced office space.

 

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