A new office lease is often an exciting event, yet there are hidden pitfalls that should not be overlooked. While it is self-understood that renting a space entails costs, which will make a considerable part of your overheads, not every business owner realizes that there’s more to it than a lease quote received from the landlord.

Refurbishment and maintenance, upgrades and purchase of office equipment are some of the things you might leave out of your budget. Those unforeseen expenses, together with the lease, may by far exceed your budget. Add to this the fact that you are usually bound by a long-term contract (3,5 or even 10 years), and you can be in the red before your business lifts off the ground. To avoid such a scenario, you may consider going for a serviced office.

What does a serviced office mean?

The serviced office business model presupposes an all-inclusive rent, i.e., a space operator provides all the facilities needed for your business activity including furnishing, office equipment, communication systems, maintenance, cleaning, and security. You can also rent a conference room, make use of IT support or a pantry on a “pay as you go” basis. Such managed office spaces are usually run by an on-site center management company that takes care of the tenants and addresses their needs.

Because of its plug and play features, a serviced office is often mistaken for a coworking space. However, although these business models share some similarities, they are different. While serviced offices offer more privacy compared to shared workstations, they place little or no emphasis on the social, networking and community aspects.

The Serviced Office Business Model

Although the first executive suites company, which was built around the same principles as a serviced office, was established back in 1962, it wasn’t until the 1980s when serviced offices gained a strong foothold in the commercial world. Since then this business model has been strengthening its presence.

The serviced office business model operates in the following way: a proprietor rents an entire floor (or sometimes the whole building), refurbishes it, fits with all the necessary equipment and furniture, purchases amenities and then sublets individual offices to companies that don’t need or can’t afford larger space. Because serviced office operators have many clients, they make money by charging the tenants the lease fee which includes the use of the available amenities, utilities, maintenance, telecoms facilities, and management fee.

An operator charges the clients a bit more than their [operator’s] overheads, while the tenants don’t pay that much compared to the conventional lease considering that they don’t bear any additional expenses such as heating/air conditioning, electricity, security, maintenance, etc.

The costs of a serviced office vary depending on the location as well as the number of desks in an office, so it’s hard to give a market average. However, thanks to a serviced office, a company may save from 43% to 73% on office lease compared to the traditional rental by saving on the services that are usually not included into conventional leases.

Serviced Office Industry Analysis

Serviced offices are on the rise these days. In the agile and ever-evolving business environment, they meet the demand for flexibility, seamless integration, lack of heavy initial capital investment, and the possibility of a short-term lease.

They are chosen by new startups and well-established companies that are trying to avoid a long-term commitment with a lessor. Recently, there has been an upturn in investment into the sector which means a bright and promising future for serviced office operators.