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Time to move office?

Philip Fisher argues that now is the perfect time to review the office setup. The pandemic may also be a unique opportunity to re-negotiate and reduce office costs.

4th Jun 2020
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Modern co-working office space
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At the moment, most businesses are being cushioned by government measures such as the furlough scheme and business rates holidays, but that will not last. Before too long, many of us will face the prospect of reduced fee income as some clients disappear, while others cannot afford the levels that we have been used to charging.

In that context, most accountants will initially think about marketing in order to bring in new business but, at the same time, cutting costs is going to be essential. 

Last month, I posed the question as to whether some accountants would ever return to physical office spaces. Reactions were mixed but the overall view was that very few would forsake offices completely, although their needs might be significantly different, primarily as a result of coronavirus social distancing obligations.

Standard practice

The generally accepted practice when leasing office space has developed over many years and can be summarised fairly succinctly.

Typically, a firm of accountants would rent an office on a lease with periodic rental reviews, typically upwards only, and the occasional break clause. In a market where there was a shortage of decent office space, this was deemed perfectly acceptable, particularly when there were often great deals that reduced the cost in the early years.

Many of us may well be occupying offices that cost nothing to rent for the first 6 or 12 months, but that is history and rent prices are now often exorbitant.

Assess and take action

As previously recommended, at the moment every business should be assessing its office needs going forwards. In some cases, after due consideration, you may decide that there is no need for any permanently held offices.

At the other end of the scale, due to social distancing obligations, some firms might decide that they require more space than in the past, in order to get everybody that they need in safely.

Most practices will probably fall somewhere in between. Either they will have got used to the concept of allowing staff members to work at home and want to cut down on office space, or they believe the current accommodation would work, albeit with a significant refurbishment and redesign.

The future of the office

Without having investigated the issue in any detail, it seems fairly obvious that there is going to be a glut of office space available in the very near future.

Sadly, many businesses may decide that they are unable to continue. Others will need to cut costs and therefore vacate expensive offices which will exacerbate the surfeit that existed before the pandemic crisis. This makes it a buyers’ market where we are the buyers. If Prêt a Manger, Superdrug and Debenhams are attempting to renegotiate their lease terms, then this is a fantastic opportunity to cut costs at a time when savings are desperately needed.

If you have a break clause coming up, rather than renewing, it is worth considering moving to an office better suited to your future business needs, or speaking with the landlord to discuss much more favourable terms.

Even if that is not an option, a conversation with your landlord about the future could prove beneficial. One imagines that they must be running scared at the moment, petrified at the prospect of losing tenants with little chance of replacing them other than by lowballing.

Replies (3)

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Hallerud at Easter
07th Jun 2020 21:22

I should not say this (being on the landlord side of the equation) but there may be a case with your landlord of not firing until you see the whites of his/her eyes. Getting a better deal may well be easier the more pain he/she is in, and that will likely take time, the tenant casualties for some landlords may need to get pretty high (build up of voids) before they finally agree to reduce what they are asking.

Whilst we are a very "flexible"landlord, we ought to be able to limbo dance, a lot are not- my day to day work colleague who manages our property is a commercial agent for other landlords, some are like us, pragmatic, get the thing filled rather than holding out for top dollar, but quite a few are not, they got £10,£12, £15 a sq ft before so that is what they will take. They ignore the advice of their agent to take the deal offered, and can endure 6-12 month voids before finally coming round. I take the view that property rental is like the hotel business, if a night happens with an unlet room I cannot get the lost rent back, take the deal on a short term basis and screw it back up when/if the market improves.

As for us, we think offices (and leisure and high street retail) will have a bad time and if this is the case we will either accept lower rents or go to our plan B which is take those offices that could readily be converted to residential (we have about £1.5 m of these) and convert them, our supply reduced, target those enquiries we do get to our other offices less capable of such conversion- we already had a list of the likely ones prepared way back in March.

So, getting the best landlord deal does not always fall to those moving first, wait a bit and possibly get a better deal.

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Hallerud at Easter
07th Jun 2020 21:34

Should have said, trust you are now slowly mending and taking the pace of life slow and steady until you are back in fine fettle.

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By Felis Catus
10th Jun 2020 11:02

If you have managed working from home for the last 3 months then do you really need an office at all, and if you do, why?

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