Reports of the death of the urban office have been greatly exaggerated. A recent survey, conducted by Addison Lee, revealed that almost three quarters of London businesses are planning a return to the office by September 2021. In spite of the obvious and significant upheaval of the last 18 months and the interrelated growth of home working for the traditional office workforce, many of the key factors that underpin the allure and utility of the urban workplace remain.
During conversations with The Argyll Club’s customers, for example, one quickly understands the vital importance of an office for business growth. Many customers, particularly those with growing teams, see the office as an important facilitator of training and skill sharing. If readers in senior positions cast their minds back to their formative years, they will surely remember the crucial learning that came from listening to a peer on the phone or watching a manager deftly tackle a sensitive issue in a meeting; these experiences, although sometimes fleeting, simply cannot be replicated via Zoom. Nor, in a similar vein, do many companies feel able to successfully craft a culture virtually, and many younger businesses that are still formulating their brand argue that they require a credible address and physical place to meet with clients, investors and potential recruits.
For all of these reasons, many businesses are not just returning to offices post-lockdown but are reinvesting in them. Parallel to the ‘race for space’ in the residential housing market, Knight Frank has noted a ‘flight to quality’ in the London office market, evidenced by increasing demand for fitted-out space with high quality amenities, such as roof terraces, bicycle facilities and quality on-site food and beverage offerings. Such requests accounted for 60% of enquiries in 2020, according to Knight Frank, which represents a marked departure from traditional office occupier requirements.
However, the world is still far from a place of certainty. Many business leaders are, therefore, seeking a quality workplace but also flexibility as they and the economy ride out the remaining pandemic-induced turbulence. Even prior to Covid-19, the flexible office sector was enjoying rapid expansion: it grew 21% between 2019 and 2020, as the UK’s biggest flexible office providers increased their portfolios by 6% to a value of £18.9bn in the last year, up from £17.7bn the year before, according to research carried out by the law firm Boodle Hatfield. But now the race for prime flexible space is really on, as it affords a business the ability to easily scale their real estate up and down relative to their team and bottom line.
As such, as restrictions ease, many businesses are looking to repurpose their office to a flexible workspace. But, to minimise cost and disruption, what are the key points to remember when selecting and negotiating a new space provider?
1. Inclusive fee
One of the common characteristics of flexible office space is that the rent is usually ‘fully inclusive’. For any business owner this has obvious advantages (e.g., certainty of expenditure) but it is worth ascertaining whether this rent is ‘fully inclusive’ and suits the requirements of your business and its employees. You should carefully review the terms of occupation to check whether the office provider is able to adjust the level of rent payable. Sometimes the office provider may retain the right to adjust the rent if the occupier’s use of utilities or services become unreasonable or excessive and if the property taxes over the course of the occupation increase.
For some properties, the rent may be exclusive of certain amenities and/or services, such as meetings room or printing services. It is worth understanding, as far as possible, the requirements of your company and wrapping these requirements into the rent figure or agreeing the price for these additional requirements at the outset, as this is likely to be cheaper than paying for these items on an ad hoc basis.
2. Flexibility of occupation
Does the office provider offer suitable agreement terms and/or have capacity within its portfolio to cater for the fluctuating requirements for your business over time (i.e., the ability to increase or decrease desks or offices)?
This is one of the key selling points for flexible office space, so it is wise to ensure that the office agreement can be terminated on relatively short notice and that the office provider has suitable capacity within the building or its wider portfolio to future-proof your businesses requirements to minimise the disruption of relocation.
By way of example, The Argyll Club, who operate premium flexible office locations across central London, recently launched Hub & Flex, a new hybrid working product that responds to this requirement for greater office flexibility. The product allows businesses to lease a private office ‘hub’ for their core team and receive an additional complimentary hot-desking ‘flex’ solution for every two contracted desks in one cost-effective package.
Most office providers prohibit any alterations by the occupier without consent, but many can provide and/or assist with bespoke fit-out at the start of the occupation or refurbishment in the future. It is worth discussing your fit-out requirements as early as possible with office providers, as fit-outs can have lengthy lead-in times and providers often have restrictive conditions for any works not conducted by their own approved contractors.
As part of the ‘flight to quality’, there has been a noticeable increase in occupiers requiring highly bespoke fit-outs to reinforce their brand, collaboration and staff retention. For example, The Argyll Club has seen a significant increase in requests for in-office meeting rooms, showers and kitchens in the wake of the pandemic, as employers seek to create the ideal private workspace for their team. In fact, earlier this year, another office provider even installed a tanning room in an office for a consumer products company!
On most occasions, a deposit will be taken by the office provider, usually representing a few months’ rent, and this can be used by the provider if the occupier misses payments or damages the property.
Although it is standard practice for deposits to be taken, it is worth understanding on what terms and conditions the monies can be deducted from this. Points to check are:
- Does the office provider have to give warning before drawing down on this deposit? A warning period may give the occupier time to remedy the situation.
- Does the occupier have to top up the deposit amount if it is drawn down by the office provider?
- How quickly must the office provider return the deposit after the occupier leaves?
In addition, it is worth asking whether this deposit will be held separately from the assets of the office provider and protected in the event that it becomes insolvent.
For some businesses, the world of flexspace will be a new one. However, by inspecting these details a little closer, a move to a flexible office space post-lockdown doesn’t have to be a complex one.
About the Authors
David Rawlence is a lawyer at Boodle Hatfield. David acts on a range of commercial property matters and specialises in the flexible office sector.
Beth Hampson is Commercial Director of the Argyll Club, London’s premium flexible workspace provider, which has 35 locations across prime central London and over 8,000 members across sectors including financial services, law, technology and recruitment. The Argyll Club offers private offices as well as business lounges, coworking, meeting rooms and day offices.