Leasing Office Space: The Ultimate Cost Saving Guide 2023
By Varun Bodhi
Leasing office space is a major milestone for every business owner. Having your own commercial real estate signifies an established business and provides the credibility needed to set yourself apart.
However, while securing an office space for your business is essential, it will undoubtedly be one of the largest costs to your company. There are a wide range of factors that must be considered before leasing an office space because of the many underlying costs related to commercial real estate.
This guide will provide a complete overview on all the costs related to leasing an office space and give cost saving advice. We will also assess the difference in cost between conventional office space and an alternative, so you can select the most optimal solution for your business.
Table of Contents
2. The Average Cost of Leasing Office Space
2-1. How to Calculate Office Space Rent
2-2. What are Outgoings? What are the Common Types of Leases?
2-3. Office Space Cost per Area
3-1. What is a Serviced Office?
3-2. Leasing a Serviced Office
3-3. The Cost of a Serviced Office
4. The Additional Cost Saving Benefits of a Serviced Office
4-1. Fully Furnished
The Business Life Cycle
Before delving into the facts and figures of leasing an office space, it’s important to understand why your business needs space and how finance plays a vital role in this equation.
At every stage of the business life cycle there are two necessities which you can’t get by without – space and finance.
A study from Business Insider found that 82% of small businesses fail due to cash flow issues. From 2021 to 2022 there were 472,731 new business entries and during the same period 305,085 exits were reported – staying proactive as opposed to reactive with your finances will safeguard your business' longevity, hence finding the most cost effective office space solution is a given.
Without a physical space to operate from your business sacrifices functionality and lacks credibility, whilst no finance means your business can’t afford space, technology, staff and just about everything.
Whether you’re a solo entrepreneur, small to medium business or large enterprise, these two factors are obligatory for a business to exist – in fact, some countries don’t permit businesses registration without an appropriate address.
The Average Cost of Leasing Office Space
The monetary figure behind leasing an office space is influenced by a variety of factors which include the location, size of the space, lease term and the class of asset.
How to Calculate Office Space Rent
According to data from Commercial Real Estate, the formula in determining the cost of an office space is based on a dollar-per-square metre figure.
Below is an example:
Let’s say an 80sqm commercial real estate you desire is advertised as $70 per square metre per month. Using the formula of 70 x 80 x 12, your annual rent will equate to $67,200 and this is generally not inclusive of GST.
To add GST into the total, simply calculate ten percent of your annual rent and add it to the figure. In this case, we end up with a grand total of $73,920 - the payment frequency of the rent is usually on a monthly or per annum basis.
What are Outgoings? What are the most Common Types of Leases?
If you luckily have a 'gross-rent' lease then you are not required to pay for building outgoings as this is all covered within your rent. Unfortunately gross-rent isn’t all that common, which is why businesses end up having additional costs when finding an office space for rent – these are known as outgoings.
Outgoings for a base commercial real estate include:
- Council rates
- Water rates
- Building insurance and land tax
- Grounds maintenance
- Common electricity
- Lift servicing
There are also two more common leases: ‘semi-gross lease’ and ‘net lease’.
In a net lease the occupant of the commercial real estate will pay for rent and all outgoings.
Whereas the semi-gross lease operates under two possible structures:
- Listed outgoings – in this structure the lease will require the office space occupant to only pay for specific outgoings. There is not set format in this method and the payable outgoings can vary from lease to lease.
- An increase per year – this structure includes the outgoing costs in the rent, but the rent will be adjusted as the prices of outgoings increase. For example, a commercial real estate occupant is paying $40,000 per annum, however the following year the cost of outgoings increase from $8000 to $10,000, therefore the tenant’s rent is adjusted to $42,000.
Outgoings are a constant cost to businesses, hence understanding this before leasing an office space is important to avoid unwanted surprises.
Office Space Cost per Area
According to Colliers International recent data, the average cost of leasing an office space has increased in most cities but the incentives are mostly the same.
Commercial rent incentives are a percentage range which indicate to what degree a landlord can adjust their rental rates based on market conditions and demand.
Average Commercial Rent Snapshot
- Sydney CBD - $1,125/sqm & 34% incentives
- Melbourne CBD - $727/sqm & 40% incentives
- Brisbane CBD – $708/sqm & 40.6% incentives
- Adelaide CBD - $423/sqm & 36% incentives
- Perth CBD - $671/sqm & 45% incentives
- Canberra - $435/sqm & 26% incentives
With the average office space per employee being 12-14 square metres, a solo business owner can expect to pay around $162,000 per annum for a prime office space in the Sydney CBD. This price vastly increases when your business has a team and you require additional space.
What is the Alternative?
Now that we’ve established the rent of an office space, highlighted the lease types and recognised the outgoings, it’s time to create a comparative cost on the most similar alternative – the serviced office.
It should be noted that the costs stated earlier are strictly for the office space itself and business owners need additional capital for furniture, hardware, technology and the labour involved in installing everything.
What is a Serviced Office?
A serviced office is an office space in a building provided by an operator, which can be rented on a usage basis. They are a fully furnished private space that can be leased and businesses can easily upsize or downsize depending on their needs.
The rent of a serviced office is significantly less than a traditional office space, whilst coming with many benefits that can save business owners a fortune.
Leasing a Serviced Office
A major benefit of renting a serviced office is the flexible lease terms that accompany it.
Depending on the location, a standard lease for an office space can range anywhere from five to more than ten years. This is a major commitment and is typically the biggest barrier of entry for smaller businesses which are wanting to acquire an office space.
A serviced office can be leased on a monthly, half yearly and yearly basis to give business owners a minimal risk contract. Serviced offices are normally rented on a semi-gross lease, with costs only increasing to match the outgoings paid by the operator.
The Cost of a Serviced Office
Other than the physical size, the rent of an office space is determined by the location.
Having an office space in an iconic building such as International Towers Barangaroo or a heritage building like MLC Centre would usually be a large capital expenditure, but a serviced office can greatly reduce this.
For example, a Servcorp serviced office in Barangaroo can be rented from $1900 per month, equating to $22,800 per annum. Upon comparing this to the example provided under Office Space Cost per Area, a business can save $139,200 on space – that’s around 86% cheaper.
However, the capital businesses save with a serviced office doesn’t stop there.
The Additional Cost Saving Benefits of a Serviced Office
Having space isn't the only cost your business needs to tackle upon being established. The cost involved in buying the right technology, installing hardware and software, furniture and hiring a team will undoubtedly eat into your cash flow.
While we can’t speak on the cost saving benefits of other operators, below is a comprehensive breakdown on all the capital a business can save with a Servcorp serviced office.
Your choice of desks, chairs, glass and other furniture to create your desired office space environment is costly, but is a satisfying part of owning your commercial real estate. Research indicates that businesses should set a budget of $1500 - $2500 per employee on office furnishing.
A serviced office comes fully furnished with all the desks, chairs, storage space and glass doors to cut a large cost that you would otherwise invest in an office space. While this limits customisation in terms of desired furniture, it compensates by saving a large sum of money.
Unlike traditional office spaces, serviced offices offer far more than just the square metres for which you pay. You also gain access to a shared kitchen with unlimited refreshments - all included within your rent. This is further extended with access to state-of-the art meeting rooms and boardrooms which are completely equipped with all the technology for modern business needs.
With boardrooms being at least 15 square metres large - the money businesses save is evident.
Purchasing technology, installing hardware and software are costs which can’t be overlooked.
Regardless of your business’s industry, you will require Wi-Fi. The average cost of a business internet plan can range from $80 to $700 per month depending on your speed requirements.
A serviced office mitigates this cost because fast and secure Wi-Fi is part of your rental cost – saving your business anywhere from $960 to $8400 per year. This technology is accessible the moment you switch on your computer, enabling businesses to fast track the time involved in selecting an internet service provider and selecting a deal.
Other technology a Servcorp serviced office includes:
- VLAN: a highly secure network which costs around $0.10 per hour per VLAN attachment – a small business with ten employees would pay approximately $8760 per year.
- Call routing technology: serviced office tenants receive a virtual local landline number for their business. Call routing technology enables all calls out of business hours to be directed to any of your selected numbers such as home, mobile, co-workers etc. According to research, your business can expect to pay between $20,000-$500,000 on software and equipment, $25,000 or more on installation and 15-20% of the initial license cost for maintenance and updates.
- Tier-1: A tier-1 internet connection implies you either own or control your portion of the internet, while the lower tiers indicates that you lease bandwidth from them. Servcorp is its own internet service provider (ISP) which not only ensures speed, but also reliability and safety. There is no set price, however becoming an ISP requires a minimum of $25,000.
- Custom Firewall: A commercial firewall for a very small business can start from $700 and reach up to $10,000 depending on the number of users. These enable you to create a firewall tailored for your business, however it’s important to have the right team of professionals install this.
A Team to Delegate to
A traditional office space comes with four walls and a ceiling but you still require the capital to pay for a team.
Even if you’re a solo entrepreneur, every business owner will benefit from a team. The time saved by delegating tasks enables businesses to focus on duties which produce sales. This is especially true with administrative tasks which eat into productivity.
However, as a business other than the salary you must pay your employees, you also incur other costs.
The time taken to plan a job advertisement, find candidates and selecting the right applicant can take approximately 42 days of your time. Additional costs such as sick leave, accrued annual leave, payroll and the process of rehiring if a team member leaves are all liabilities.
A Servcorp serviced office provides tenants with a dedicated receptionist to answer all business related calls. Through the call routing technology mentioned earlier, the receptionist is able to attend all calls and transfer them to up to nine customisable diversions.
This saves businesses a salary of up to $60,000 which can be utilised towards other business operations.
In-house I.T Support:
In a traditional office space you would hire an I.T team to install all the necessary software and hardware to begin operations – but what happens when you run into an error?
Technical downtime not only hinders your operations but can leave your business vulnerable as it waits to outsource assistance, whilst dealing with the time taken to convey the issue and receive help.
Included in the rent of a serviced office is an in-house team of I.T experts. These technicians provide customisable security and deliver instant assistance for simple or complex networking issues.
With the average salary of an I.T technician ranging from $60,000 to $80,000 – that’s another significant amount of capital which can be used towards business development.
Administrative tasks are one of the most time consuming duties which produce no capital. Research suggests that small businesses lose up to $14,857 per year from time consumed on administrative tasks.
To save your business time and assist you across a range of tasks including data processing, file maintenance, archive handling, graphic design, expense claim preparation and more, a secretary is part of your team at a serviced office.
Through this your business receives an approximate added value of $74,750.
Which Option is Suitable for my Business?
The choice between selecting a traditional office space compared to a serviced office is dependent on the stage of your business life cycle and needs.
As a smaller business, investing in a traditional office space opens the door of greater branding options and customisation, however the associated costs are a major drawback. With thousands of businesses failing due to a lack of cash flow it is important to be proactive and save capital where possible. Businesses must also be financially prepared for outgoing costs and commit to lengthy leases in a phase of their business that may not be stable.
A serviced office is a suitable alternative for any stage of the business life cycle because of its low risk and cost profile. Serviced offices with the right technology can enable businesses to work hybrid and seamlessly upsize or downside because of their short lease durations.
However, if neither options seem palpable for your business then consider switching to a coworking space or a virtual office.