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Should you go for a leased office or a fully-managed flexible office in New York?

You’ve started to have a look around the internet (or stalked the streets) to see what offices are available in your desired area. The future is becoming real. Now things start to get interesting.

A decade ago, organizations had to pick between an office lease for 5+ years or a few makeshift desks in a grey box alongside hundreds of other companies.

Since then, though, the situation has changed beyond recognition.

You now have more choices than ever. Sure, you can still find looong leases and soulless coworking spaces. But the lines are starting to blur. And the average quality of the office environment is on the rise, along with the flexibility of the type of spaces on offer.

All good news, right? But with so many possibilities, how are you supposed to know what’s right for you and your team?

Offices these days fall into one of three categories (with some overlap): leased offices, subleased offices, and fully-managed flexible offices.

Leased offices

What’s a leased office?

In a nutshell… Put down roots. Stay awhile. Have things your way.

Length of stay A leased office tends to be a longer-term solution, where companies stay between 3 and 10/15 years.

Size of space The economics of a leased office start to stack up for larger teams of 40+, provided you stay awhile to amortize (spread) the cost, otherwise, it’s an expensive option. But you can also find leased spaces here and there that are smaller (check the subleased section below for more). And as a maximum? The sky is literally the limit... 3,000 desks, 4,000 desks… we’re talking entire high-rise buildings here.

Flexibility You might have a termination option or right that gives you the option to move out early. Aside from that, once you’ve committed to staying for 3 years, you’ll have to stay for 3 years. It may be possible to take on extra space in the building you need to upsize. No guarantee though. It may also be possible to sublet some of the space or the whole place if you need to downsize. No guarantees on this end of the spectrum either, and you’ll need to find a tenant as well.

Control You get full control over the physical space (within regulatory constraints) and how you set up the services and utilities you need to keep things moving along. The power! And most leased offices are offered unfurnished, so you have the freedom to design, decorate and fit out the space exactly as you would like. This is usually an extra cost you’ll need to budget for, but for some companies, the investment makes sense.

Responsibilities You’re directly responsible for the rent, real estate taxes, as well as organizing and paying the internet. Whereas for utilities (water, electricity, internet, etc.) and cleaning, this varies from building to building.

Type of agreement A leased office involves a formal contract between you and the landlord. It’s a beefy and detailed document that can be more than 50 pages in length.

Negotiations A lot of value is gained by having someone, such as a real estate agent, help you negotiate your leased office. Additionally, it comes with a lot of legal terms to hammer out, which typically is handled hand-in-hand between your agent, lawyers, and the landlord’s lawyers. There are high-level negotiations around the price and how long you’ll be there, plus some less obvious negotiations, like the “restoration clause” (this lays out the condition you have to return the space to when you leave) and the scary-sounding-but-not-actually-scary “sublease and assignment rights” (aka subletting). Yup, legal mambo jumbo!. Luckily, at Kontor, we like giving our clients a hand with the translation as well as the negotiation. (We negotiate the headlines of all the above in the “heads of terms” and then pass them over to the legal eagles to thrash out the finer details from their golden thrones.)

Upfront costs You’ll usually need to pay a deposit of between 3-12 months’ rent, depending on your business accounts. Other costs to consider are attorney fees and taxes.).

A leased office could be right for you if…

  • You want to put down roots for a while in one location.

  • You want to have things your way, with full control over how the office looks and feels, from the kitchen to the entrance hall.

  • You have the capacity, budget, and headspace to think about fit-out, furniture, and everything else.

  • You’re not in a hurry! (We recommend allowing at least 4- 6 months for the process, from starting your search to move-in day.)

A leased office is probably wrong for you if...

  • Your company is in a phase of life where it’s hard to predict the future.

  • You don’t have anyone in your team to look after the day-to-day tasks involved in running the office (it adds up fast!).

  • There are more efficient things you could do with your money than tying up a large chunk of capital in a rental deposit or shouldering legal and professional fees and fit-out costs.

Keep in mind though… Landlords are increasingly willing to offer shorter leases or help with upfront hassles such as furnishing or fit-out because they recognize that the market is changing. Companies are moving more often and have different wants and needs. So if the stress and time involved in getting the space ready are what worries you most, a leased office could still be worth considering. (We call this the “hybrid” approach.)

Fully managed flexible offices

What’s a fully-managed flexible office?

In a nutshell… Minimal fuss. Fast turnaround. Plug ‘n’ play desks. Sometimes called a “managed office”.

Length of stay Typically a year, but can be as short as monthly or as long as 2 years.

Turnaround time Fully-managed flexible offices are ready to go. Just move in and get to it! In theory, you could start your search and move in within weeks, but if you rush it to that extent, beware; you might have to “settle” for an imperfect place.

Flexibility The clue’s in the name. A fully managed flexible office gives you the ability to scale up and down as you need. You can often extend your stay, shorten your stay, move around within the same building, take extra space within the same building, or move into one of the provider’s other buildings.

Size of space Most companies who go for this option tend to need between 10 and 50 desks. These days though, it’s not uncommon to find fully managed flexible office space for 300+ people. You can even be the sole occupant of several floors in a building, with your own entrance, so it looks and feels like a leased office. And fully-managed flexible offices are the evolution of the coworking space from days of yore, which means they’re also a source of single desks for solo freelancers.

Control The situation varies from provider to provider, and it depends on how early you get your foot in the door! Some will work with you to configure, design, and fit out the space, right down to the flooring. In general, though, you have a bit less freedom to configure and brand your space than you’d have in a leased office.

Responsibilities This is where you save a ton of hassle compared to a leased office. You pay a fixed amount per desk, and the price includes all the essentials: rent, real estate taxes, utilities, cleaning. Some nice-to-haves (e.g. printing) may be charged extra.

Type of agreement A fully managed flexible office is agreed on a license basis. A license is much less formal and complicated than a lease contract (think 5 pages, not 50!).

Negotiations Again: simpler than a lease. You’ll want to negotiate on price, flexibility, and maybe small things like meeting room credits or how you like your coffee ;)

Upfront costs You’ll usually need to pay a rent deposit or the first 1-3 months in advance.

A fully-managed flexible office could be right for you if…

  • You want to keep the upfront fuss and ongoing fuss to a minimum.

  • You need to move quickly.

  • You’re growing fast and can’t predict how much space you’ll need a year from now.

  • You want to avoid tying up cash flow.

A fully-managed flexible office is probably wrong for you if...

  • Your company is stable and established, with little fluctuation in headcount.

  • You want to keep your office costs as low as you can over the long term.

  • You have a dedicated creative team and management team who want to go all-out and make the space feel unique and custom in every detail.

Keep in mind though… We can’t emphasize enough how much the industry has evolved. The phrase “serviced office” once conjured up a nightmare vision of stained cubicles, broken ceiling tiles, and cracked lino floors. But no more. At least, not very often. It’s possible to get a fully managed flexible office that does a very convincing impression of a leased office. High spec, brandable and self-contained, with flexibility on top. (Again, this is “hybrid” territory.)

Subleased Space

Are you looking for a shorter-term or slightly smaller space, but flexible offices are not your thing? Then a sublease might be for you. Typically, this is ideal for anyone looking for a 1-3 year term for a team of 20+ people. However, there is no limit to this, it can also be as long as 10 years.

Another option to consider is a sublease. This is where you step into another occupier's leased workspace when they no longer want/need it but still have some time left on their agreement. Typically, with this route, the space is already designed, constructed, and furnished to suit the original tenant’s needs. So this can be a great option for someone looking to find and occupy a space quickly and on a shorter term than usually required by direct to landlord leases. One additional thing to note is that subleases come at a discount, which can be substantial, compared to leased options.

Just as with a direct lease you will be responsible for the utilities, day-to-day running of the office, and furniture (should this not be left behind by the departing tenant).

Generally, when taking a sublease you will be committing to lease the space until the end of the original tenant’s term, however, most landlords would be happy to discuss extending this if the original term is too short for your needs.

Still on the fence?

Can’t decide whether a leased office, subleased office or fully-managed flexible office sounds like the one for you?

That’s OK. In our experience, around 1 in 3 companies (a wild estimate) change their mind throughout their search. That’s because they need to see a few options to get a feel for what will and won’t work for them. No problem, you have to start somewhere!

Any questions big or small, we’re happy to have a chat and learn more about your situation, so we can give you our take, no strings attached. Drop us a line at kontor.com.

Want to know more?

Let's chat! You can call us on +44 020 3770 4279 or email hello@kontor.com

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