Blog - Commercial

05 March 2019

RENTING AN OFFICE FOR ROOKIES

When considering renting an office, there are a number of factors to be taken into account.

Location, location, location!

The first is location. Ideally, your office should be accessible and central to your clients. If, for example, the majority of your clients are in Parramatta but you are looking at spaces in North Sydney, remember the age-old line ‘location is everything’.

If you are too far from your client base this will no doubt act as a deterrent when it is time for them to come in for a meeting or catch up. And if you have just spent a large amount of money setting up a new office with the idea in mind that it will be customer facing, it may well have been in vain. As more services become available in local areas, people are less willing to travel long distances. Making it easy for your customers to reach you is imperative.

When considering office spaces, you should also consider foot traffic. If you’re running a business that relies on walk-in business, you need to be seen. Being tucked away on the 14th floor of a building isn’t going to work. If you can’t get street-level premises, be sure you can at least display some signage in the busy areas around your office.

Your choice of location will also affect your staff. It is highly advisable to be on or close to a train or bus line. This will also help to attract quality staff. If your office is off the beaten track then it will make it harder to appeal to new talent as well as to retain them.

A train pulling into a station in Sydney

Does size matter?

Yes. It comes second to location.

Size is determined on a few elements, the main one is the number of staff members you have. The industry rule of thumb is approximately 10mper person.  This number takes into account a small reception, a small meeting room and utilities. Therefore, if you have ten staff it is likely you will require at least 100m2.

There are of course some variables to this. If you require a large boardroom, breakout areas, multiple offices, kitchen etc. then your size requirements will increase.

Your costs, in the beginning, can be high, so we don’t suggest renting a larger space than you need. However, if you have a strong business plan and genuinely think your business will experience rapid growth in the next couple of years, it may be worth considering more space to accommodate more staff or a more flexible leasing agreement.

You can use this article as a guide to determine how much office space you actually need.

A large open meeting space with a table and chairs situated in the middle and floor to ceiling windows

Money talks

Before renting an office space, you must ask yourself the hard question, and answer it realistically, ‘How much can I really pay on rent’?

The main components that decide price are location, building quality and natural light/outlook.

Generally, the closer you are to public transport the higher the rent.

A building that is modern and up-to-date with facilities (particularly smart buildings) will cost more than an older building with tired facilities. The exception here, of course, is an older heritage style building that has had a substantial refurbishment. This gives the building a point of difference, and these buildings have a strong following by creative tenants.

Natural light is often one of the major factors considered by businesses, along with a pleasant outlook. Buildings with good natural light and outlook are more expensive, and if they come with park or harbour views costs can escalate even more.

In the beginning

The fourth thing to consider is the setup costs. You will have a number of setup costs to budget for when leasing an office. All owners require a bank guarantee for security over the space. This is generally around six months’ rent for a three-year commitment. In some cases, this may be reduced subject to you supplying sufficient financials to confirm that you have a solid business and are a ‘good risk’. There will also be some legal fees, which generally cost between $1,000 and $2,500.

For insurance, you will require public liability insurance in the range of $10 million to $20 million, as well as business and general insurance. It’s important to seek expert advice on this aspect because all businesses will be different when it comes to insurance.

Rents are also paid monthly in advance so this cost will need to be considered prior to lease commencement. 

What’s in it for you?

The last thing to think about when it comes to renting an office is lease incentives. Landlords will often offer tenants incentives to entice them to lease their commercial office space. Incentives are generally determined on a case-by-case basis and are dependent on many factors such as lease term, type of business, vacancy in the particular building, market conditions etc. The larger the office, the larger the incentive is usually how it works.

If the office has a nice fitout in place then the incentive will be lower, and vice versa if there is a high vacancy. Depending on the market at the time, incentives can be considerable. Owners may offer at least a 20% discount on the rental costs, and this can escalate to 30% in some cases. Smaller owners usually offer 10%, but again, this may depend largely on things like lease term and how well set up the office already is. Incentives are generally offered as rent abatement over the term of the lease effectively reducing the monthly rent by the percentage negotiated. In some cases, a fitout contribution is also offered. This should be negotiated with the landlord, however, you should always try to find an office that closely meets your requirements. If you need to make drastic fitout changes, your up-front expenses can increase dramatically.

An empty office with empty cubicles on either side of a hallway

Renting an office, in a nutshell…

Renting an office space should not be a difficult process. If you follow the above steps, use common sense and give yourself enough time, the lease process should be an easy one.

Unlike the residential world, commercial agents are able to show you every available office space for lease, even if it’s not directly listed by their agency.

Speak to one of our team members and let them help with all your commercial leasing needs. If you need assistance finding the perfect office rental, we’re here to help.

 

Date: 05 March 2019 Author: Adam Hennessy
Commercial

About the author:

Adam Hennessy

Adam Hennessy has been involved in the Sydney commercial real estate industry for over 16 years and is Director of Office Services at TGC. After owning Ray White Commercial Sydney Leasing, Adam joined TGC in January 2007 with a mandate to grow TGC’s office services portfolio.

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