When you’re running a business, every dollar counts. Optimizing your capital expenditures is essential to your company’s success. And overspending or misallocating funds can cause a ripple effect throughout your entire organization.
Next to payroll and benefits, the cost of your office is one of the most significant expenses faced by many organizations.
So, in the same way you would thoroughly vet new hires coming into your company to find the ideal candidates, it’s crucially important that you’re equally stringent when it comes to selecting the right workspace.
And this all comes down to understanding what you need from an office, what you don’t, and what your options are.
How the costs of office space can be calculated
There’s a challenge with asking about how much a traditional office space costs compared to a coworking or flexible office space. It’s akin to asking, “How long is a string?”
The answer is that it depends.
When choosing an office space, the question of cost isn’t as simple as dollars and cents, per se. You also need to consider things like duration, terms, location, and more.
However, for both traditional office space and coworking, there are a few common factors that determine the general costs for each.
The cost of traditional office space
For decades, traditional office leases have been the status quo. In this scenario, you find a space, tailor it to your liking, and stay for the long term.
Upfront costs
When you lease a traditional office space, you’re typically getting an empty space. This can create a ton of opportunities, but it can also come with a slew of costs.
This can include furnishing, technology, hardware, security deposits, and more. You may also need to account for legal fees to help you navigate the leasing process.
Customization and tenant improvements
In addition to the cost of outfitting your traditional office space, you may also want—or need—to conduct renovations and customizations.
While many commercial landlords will offer incentives like tenant improvement allowances that help offset some of these costs, there will still be a cost that comes with any physical changes, customizations, or upgrades you want to make in the space.
It’s also important to consider the time, energy, and resources that go into managing a renovation project.
Monthly lease rates
Depending on the state or province in which you operate, your monthly lease rates on a traditional office space will vary.
Regardless of where you’re located, you’ll have a monthly lease rate for a defined period of time—typically between three and ten years. It is worth noting that many leases are either “net” or “semi-gross,” meaning that increases in costs to operate the building are passed on to the tenant. You are committed to paying for these increases throughout the length of the term under these models.
Monthly expenditures
In addition to your monthly lease payment in a traditional office, there are some costs you can expect to see on an ongoing basis.
This includes things like:
- Utilities
- Maintenance fees
- Cleaning costs
- Potential administrative fees
- Any IT costs that you incur to resolve issues that arise through the course of your daily operations
Commitment lengths
You can view your traditional office space costs through two lenses: one is your monthly rent, but the other is the cost of your rent throughout the life of your lease.
Your office may cost $5,000 per month. But, if you’ve signed on for five years, the total obligation of your lease is $300,000.
However, your agreement may include fixed annual increases or be subject to Consumer Price Index adjustments or market rent reviews.
It’s important to review your lease thoroughly to ensure you have a clear understanding of the ongoing and potential additional costs involved.
The cost of coworking and flexible office space
Just like traditional office leases, coworking and flexible office spaces also come with a set of costs and fees that you’ll need to consider.
Upfront costs
Depending on the coworking or flexible office space you choose, you may incur some upfront costs when signing up.
This can include deposits, set-up fees, and insurance.
Just like a traditional office space, it’s wise to do some research to find out what exactly you’ll be required to pay upfront.
Customization and tenant improvements
One of the main value propositions of coworking and flexible office spaces is that they are a turnkey solution for businesses.
This means they come equipped with all of the essentials, such as desks, furnishings, storage, and more.
While you have the ability to customize your space to align with your needs, you typically won’t need to conduct any renovations on your space.
Membership fees
Unlike traditional offices, coworking and flexible workspaces offer a variety of service tiers to choose from.
In a traditional office, you typically rent a full suite for your team. But in a flexible office space, you can choose from hybrid desks, dedicated desks, private offices, or team suites, depending on the needs of your business and your employees.
Monthly expenditures
In general, coworking space memberships are all-inclusive, meaning the cost of amenities, utilities, and technology are built into your monthly fees.
However, there may be additional costs for those services that are on-demand or customized to your needs. On-demand services include meeting rooms, event venues, and day offices to accommodate additional staff. Customizations can include items with unique technology configurations, wall removal, and furniture solutions.
Commitment lengths
This is one of the areas where traditional offices and flexible office spaces typically differ the most.
Coworking and flexible office spaces typically offer significantly shorter commitment lengths than their traditional counterparts.
You’ll still need to agree to predetermined terms, but you can choose an agreement length that ideally suits your business needs.
So, rather than signing on for three to ten years, you will likely have the option to sign on for a significantly shorter period.
While this won’t necessarily reduce your monthly fees, it will allow your company to remain more nimble: if your flexible office suite is $5,000 per month, the total cost of your agreement may only be $30,000 over six months rather than $300,000 for five years.
At the end of your agreement term, you’ll likely have the option to extend your membership or make a change.
And, since coworking spaces offer more flexible terms, it becomes much easier to increase or decrease your space needs to align with the current needs of your business.
What do you get for your money with a traditional office space lease?
In order to make the right decision for your business, it’s important to understand what exactly you’re paying for when it comes to your office space.
Traditional leases offer a few main advantages.
Privacy
Unlike coworking setups where you might share common areas with other companies or professionals, a traditional office lease generally provides an exclusive space just for your business.
Long-term security
Traditional leases usually span several years, giving businesses a consistent location and the stability of knowing their base rent won’t increase. That said, remember that you may be responsible for all increases in operating costs and costs to run the office.
However, it can also be a double-edged sword. Being locked into a long lease can hinder your operational agility because it can be challenging to get out of your lease should your needs change.
Dedicated meeting and conference spaces
With coworking spaces or flexible offices, you might have to book and possibly pay extra for conference room time. On the other hand, a traditional office typically may come with your own meeting spaces built into your suite.
What Do You Get for Your Money in a Coworking or Flexible Office Space?
Coworking and flexible office spaces offer a value proposition that is significantly different from a traditional office space.
Service
One of the defining features of coworking and flexible office spaces is their service. They often operate with a hospitality-driven approach.
Utilization
Coworking providers are in the business of building environments that attract people to their space. If it isn’t your core business, it can be difficult to know what elements of the space draw people to come to the office.
Flexible office spaces have dedicated on-site staff who focus on supporting you as an extended member of your team.
Turnkey spaces
Coworking and flexible offices are designed for ease of use. They offer turnkey spaces that don’t require much set-up. You can sign a Membership Agreement and be working in the space within a matter of hours.
All-inclusive pricing
With a flexible office space, all of your monthly costs are incorporated into your membership fee—and operating costs are shared among many other companies so you can benefit from economies of scale.
Community
While traditional office spaces are generally set up as a private space for your team, flexible offices also provide private space while also giving you and your team access to a community of like-minded people.
They also often offer professional and social events that create valuable opportunities for networking and building new connections.
Amenities
While both traditional and flexible office spaces typically offer amenities, they typically tend to be better appointed in a flexible office space since the cost of these amenities is shared by a number of different businesses.
Reciprocal access
If you join a flexible office space that has multiple locations across the city or county, you’ll gain reciprocal access to each of them. This means that, if you’re traveling and need a place to work for the day, you’ll be able to drop into your coworking space rather than having to work at a coffee shop or your hotel.
For instance, iQ Offices has one location in Vancouver, four locations in Toronto, one location in Ottawa, and one location in Montreal, and our members have access to them all.
Flexible terms
With flexible office spaces, the operative word is, “flexible.” This flexibility allows you to maintain greater operational agility than being locked into a long-term lease.
How do you choose between coworking and traditional office space?
On a monthly basis, the cost of coworking and flexible office space might seem higher than the rent paid on a traditional office lease.
But it’s important to consider what you want and need from your workspace when debating the best option for you:
- Time and Attention Costs: How much time are you or your C-Suite willing and able to dedicate to finding, building out, and furnishing a workspace?
- Scalability and Flexibility: Are you confident that the office space decisions you make today will still be appropriate for your business three, five, or ten years from now?
- Lease Termination Cost: If your needs change, what lengths are you willing to go to in order to get out of your lease?
- Adaptability: Would your business benefit more from a longer-term lease or the ability to pivot and adapt quickly?
- The Needs of Your Team: Would your company benefit from a serviced solution that has the proven ability to attract people to the office? Are you willing to invest the time and resources to figure out how they do it?
- Your Company Operations: Do you need a large space for your full team, or do you operate on a hybrid work or hoteling model in your workspace?
When you’re shopping for an office space, it’s critical that you make a decision that works best for your business and your team. But it doesn’t just come down to dollars and cents—it’s all about what makes the most sense for your organization.
Are you interested in learning more about flexible office space and determining whether it might be the right move for your company? If so, book a tour of your local iQ Offices location today.
Kane Willmott is the co-founder and CEO of iQ Offices, the largest independent Canadian-owned co-working operator with offices in Ottawa, Toronto, Montreal and Vancouver. iQ Offices provides beautiful office spaces with safety, service, privacy and design at the forefront.
