Serviced Offices Pricing Practices

Inside Information on Serviced Office Rents

Do you sometimes wonder why the rent for serviced office space seems to be a well kept secret? Why is it that the owners are so reluctant to tell you what it's going to cost you? Actually it's relatively simple to explain, but maybe not quite so easy to understand why it has to be so complicated!

The problem stems from the larger serviced office operators. If you ever ask them what the rent for a particular office is you'll find it's like getting blood out of a stone UNTIL you go and visit them. Their sales policy is that they will only quote a "list price" for an office and even this they will only do if really pressed for the information. So how do you ever get to find out what their best deal price is? The answer is that you have to physically go and see the offices - once you are there, standing in their building, talking to them - and only then - will they consider any type of negotiation.

This is much less so if you are talking to one of the smaller serviced office operators because their prices tend to be based on what they know they can afford to offer. The price is obviously made up of all of the outgoings that they know they will have to pay in order to give you a fully serviced office with no hidden extras. These sub-costs include the rent and serviced charge they have to pay to their own landlords along with energy supplies, heating, lighting, air-conditioning, maintenance, furnishings, cleaning, security etc. On top of that they have to factor in the cost of employing a receptionist to greet your visitors and someone to answer all of your telephone calls in your company name (this is often the same person as the receptionist).

The strange thing is that whilst a smaller operator will quote you pretty much the same price whether it's January or July, Monday or Friday, hot or cold, sunny or cloudy, you'll find that with the larger operators you may be offered a low price one day and a high price another day and try as you may to work out what the difference is there doesn't seem to be any logic.

So why, you are asking, is it so difficult for large operators to do the same thing? The answer has to do with occupancy rates at any given time. The fact is that they know that once they hit a certain occupancy rate (say 70%) in any particular building they are making profit, but below this they may be in danger of making a loss. Possibly the nearest equivalent that you might be able to come up with is the price of flights - the price of a seat on a flight to, say Cape Town definitely seems to go up the nearer you get to the departure date (which is reasonably logical) but the other factor that influences the price is how full the flight is when you make your enquiry. If it's already fairly full then the airline can afford to ask you for more money because they've already got to the point at which the flight is profitable so they can be far more hard-nosed about what they are going to sell the remaining seats for. Combine that with the effects of Demand & Supply and up goes the price.

Back to the real subject - many of the larger operators give their sales managers in each building a price list that they have to quote to you as a potential tenant. HOWEVER, if they haven't yet reached their magic occupancy rate, as before say 70%, then the sales manager has the authority to offer you whatever lower price he/she thinks will get you to commit (obviously subject to certain limits). No wonder you feel like you are being eyed up and down! Have they seen what car you're driving? How expensive does your suit look? What kind of business are you in - if you're a banker or a hedge fund manager you might find it harder to negotiate! The thing that matters is the occupancy rate.

You would maybe think that this is going to result in prices varying gently over a period of time, but NO, the whole essence of a serviced office is that it can be a quite short term commitment, so the occupancy rate is varying all the time. It might be 75% one week but drop to lower than 60% the next week when one of their tenants moves out and this is why it's impossible to predict what a larger serviced office operator is going to quote you today, tomorrow, next week or next month.

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