Serviced Offices vs. Leased Offices

Apr 11, 2022

By Tom Cole, Managing Director - UK & Europe

Many clients are re-evaluating their office space and considering relocations. We are observing a trend where serviced offices and leased offices are being compared. Below are some considerations from our experience and observations to help with your comparison.

Serviced Offices (Dedicated Space)

There is no denying the serviced office space has dramatically evolved over the past decade.

Pros:

  • Speed – Offices are usually considered to be plug-and-play. Once the agreement is signed, your firm can be operational in days instead of weeks or months. For example, there are no lead times or wayleaves for internet connectivity.
  • Commercial agility – Terms are notoriously flexible. Flexibility is priced in - the shorter the term the greater the price.
  • Scalability – There is often optionality to relocate to smaller or larger offices depending on your short-term business requirements. You can pay for what you need versus what you think you need.
  • Hassle-free office management – Hassle-free management of utilities, cleaning, visitors, etc. You will have a single point of contact (the serviced office provider).
  • Memberships – Serviced offices provide membership schemes whereby communal areas or meeting rooms can be booked at convenient locations (away from your primary office).
  • OpEx Model – Little capital expense needs to be committed. For an emerging fund manager, this can be very appealing.
  • Communities – There is an opportunity to network with other businesses in the building and utilise break-out areas and meeting rooms. Service providers often run events and meetups to promote the community.

Cons:

  • Inflexible and costly construction – If you want to ‘make the space your own’ by adding offices and meetings, think again. This is usually cost prohibitive.
  • Dedicated connectivity constraints – Getting dedicated circuits installed is more cumbersome and costly as corkage fees are sometimes applied. For example, if you require a dedicated Bloomberg circuit, this can be problematic.
  • 24 x 7 access & support – Be sure to understand your access and support availability and response times. Whilst office access may be 24 x 7, support may not be. Also, access to the comms room is usually constrained to office hours.
  • Furniture adequacy – Sizes of desks matter. If you have multiple monitors, they need to be wide and deep enough. And, there needs to be sufficient cable management.
  • Extended support chain – Take, for example, that there is an issue with connectivity. Rather than engaging with carriers directly, there will be a chain of communication to work through.
  • Staff morale – Whilst the agility of serviced offices is commercially desirable, constant change for your workforce can be unsettling and disrupt morale and productivity.
  • Visitor experience – Is the visitor experience appropriate to welcome investors? Are the (at times) excessively relaxed environments within serviced offices suitable?

Leased Offices

The pandemic continues to challenge the existence of permanent office spaces. However, our observations are that leased office space commitment is very much alive and kicking.

Pros:

  • Access on your terms – You hold the keys to the castle. Generally speaking, you are unlikely to need to work within the constraints of third parties.
  • Furniture to meet your needs – You’re likely to choose your own furniture and it will be owned by you. Desks can be chosen so they are fit for purpose (i.e., multiple monitors and adequate cable management).
  • Direct relationships – The supply chain for office service providers is shortened, so you can engage directly to expedite responsiveness and ensure SLAs are appropriate.
  • Physical security – Physical security may be ‘better’ than that of a serviced office provider and you will be able to access reports on access logs (without ad hoc charges and or lead times).
  • Your space, your choices – Whilst respecting license to alter, you are likely to be able to design and build the space to exactly your liking.
  • Cashflow incentives – It’s no secret that when committing to an office agreement, rent-free periods are a common method to incentivize tenants.
  • Stability – Leasing your own office with your own branding conveys a sense of stability and longevity. One could argue the leased spaces set out to feel more homely and maximize moral.
  • Connectivity – Circuits will be installed by you, meaning you have full control over what, where and how installation is made. If you need additional circuits/connectivity, this is relatively straight forward.
  • ESG promotion – With more control, you can choose to invest in more environmental office infrastructure and services. ESG throughout the entire fund manager’s operation is coming to scrutiny by investors.

Cons:

  • Lead times – Legal processes and preparing the office (i.e., construction work and circuit installations) all imply lead time. This ranges from a few months to several depending on the scale and type of work.
  • Setup costs and energy – Whilst often offset against rent-free periods, there are inevitable costs to setup the office. Costs are not just financial - internal resources are required to deliver the project.
  • Greater management overhead – Having direct relationships is a benefit. They again require energy and time internally to maintain and manage.
  • Complex total cost of ‘ownership’ – You must consider the full life cycle of the lease, including exit costs, such as dilapidations, removals, and selloff of any fixed assets.
  • Capacity planning – You need to consider your office requirements in years not months. Therefore, commit to what you may need in the future versus what you do need now.
  • Deposit – For emerging managers, a substantial deposit is usually required to offset the default risk.

There are clearly many considerations when comparing serviced offices to leased offices. Serviced offices are evolving to become a much more welcoming and viable option. However, despite the hype of businesses working remotely for the long term, our observations from clients and the fund management community indicate offices remain the hubs for talent, collaboration, and productivity. Regardless of the choice you make, there are several office pre-flight checks you should complete to ensure you're ready to go.

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