The Pros and Cons of Renting Serviced Office Space vs. Buying Office Space

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In today’s rapidly evolving business landscape, it pays to remain nimble and think outside the box. The ‘virtual office’ has long been an ideal solution for businesses that want access to office facilities without necessarily having to commit to them on a permanent basis. These virtual offices are now also coming with a ‘services’ component that makes them even more attractive to small businesses who would perhaps struggle with the day-to-day running of an actual office space – whether because of financial restraints, time pressures or other factors that might make renting a space challenging for some companies. Virtual spaces with services will typically come complete with manned reception services, cleaning services and IT support among other things.

Renting Serviced Office Space: The Basics

A serviced office is an office space that is, as the name suggests, already partly furnished and equipped. The exact nature of the facilities provided will vary from one provider to the next but might typically include desks, chairs, computer systems and basic filing cabinets. Most providers will also provide utilities such as heat, air conditioning, light and internet connectivity. Fees for these spaces will typically be paid on a short-term basis and be based on the number of workstations for employees, the duration of the lease and the amount of service and amenities included. When renting a serviced office space, it is important to read the fine print and understand the terms and conditions. Make sure to ask questions and get everything in writing. You will want to know how much notice is required if you need to cancel or end your lease early. You will also want to ask about cancellation fees if you have to end your lease early because of financial reasons.

Buying Office Space: The Basics

Buying office space may involve purchasing a building or leasing a space, or a combination of both. If you choose to lease first and then buy the building, you may be able to deduct the amount of money that you lease the space for from the taxes you pay. Buying office space offers many advantages for a business. You’ll have a physical location to call home and can grow into the space as your business expands. You won’t have to worry about finding office space each time you need more employees or need to move to a larger space. Buying office space will require a significant investment, however. You’ll likely need a down payment of at least 20 percent of the property’s value and then monthly payments on the remainder of the loan. You’ll also have to pay real estate taxes and insurance on the building.

Which is Better for Your Business?

As with many things, the answer to the question of which is better for your business will depend on a number of factors including your needs and circumstances, as well as your long-term business strategy. For example, there is a risk involved in investing in office space in that you could end up having to pay out of pocket if a landlord decides to sell the building and ends your lease early or if the property is damaged by fire or other disaster. With a serviced office space, you are not on the hook for any repairs, and in many cases, you will be able to walk away from the lease with no penalty at all if you need to quit before the term is up. In fact, when it comes to renting a serviced office space, the best advice is to always negotiate the terms of your lease as far as possible in your favor. This can help to ensure that you get the best deal on renting an office space, and also gives you flexibility in being able to leave the space if it stops being a good fit for your business.

Pros of Renting a Serviced Office

- You don’t have to worry about a landlord or building owner raising your rent. - You can walk away at any time without having to buy or sell property. - You are not responsible for repairs or maintenance. - You can choose your office location and lease term. - You don’t have to take on the risk of investing in real estate. - You can gain access to a professional office environment. - You can avoid the administrative hassle of buying office space. - You don’t have to worry about any capital gains taxes.

Cons of Renting a Serviced Office

- You don’t have control over the property and can be forced to leave suddenly. - You may have to put up with substandard conditions. - You have no security in the property even if there is a lease. - You have to pay rent no matter what happens to the landlord. - You have to live with the terms of the lease. - You have to move if the landlord decides to sell the building. - Utilities, taxes and maintenance are all the responsibility of the landlord. - You can’t build equity in the property.

Pros of Buying Office Space

- You own the building and can set the terms of the lease. - You don’t have to worry about being forced out. - You can make upgrades and improvements to the property. - You can use the property for as long as you want. - You can build equity in the property. - You can deduct the amount of the lease from your taxes. - You can deduct the interest on the loan from your taxes.

Cons of Buying Office Space

- You have to come up with a large down payment. - You have to pay real estate taxes and insurance on the building. - You have to take on the risk of investing in real estate. - You have to pay property taxes and insurance on the building. - You have to come up with a large down payment. - You have to deal with the headaches of owning real estate. - You have to be responsible for repairs and maintenance.

Bottom line

If you are a small business owner, then you know that the cost of overhead is one of the biggest expenses in owning and running a company. Office space is the second largest business expense, so it is no surprise that more and more small businesses are looking to save money by renting office space instead of buying it. When considering whether renting serviced office space is a better option than buying office space, you must consider the total cost of ownership over the long run. Buying office space will cost more upfront, but you will save money in the long run since you won’t have to pay rent.