A 60-desk occupier compares an all-inclusive flexible office with a conventional lease, with every upfront cost converted into a monthly figure per desk.
Convert everything the lease costs, upfront and at the end as well as each year, into one monthly figure per desk, then compare it with the flex price. On an illustrative 60-desk office, a five-year lease costs 538.25 per desk per month against 650 for a flexible office, so flex costs 20.8 per cent more. Shorten the commitment and the answer flips: over three years the lease costs 652.63, and below that flex wins.
Worked in full in Office Real Estate by Julian R. Sterling, with every figure reproduced in a free workbook.See the book on Amazon →
Flexible offices quote one number per desk per month, everything included. A lease quotes rent per square metre and leaves the rest to the occupier: service charge, property tax, running costs, the fit-out, the furniture, the agents and lawyers, and the dilapidations bill at the end. Comparing the flex price with the rent alone makes flex look more than two and a half times the price of the lease, when on full cost it is about a fifth dearer; comparing it with the full cost is the only fair test, and the full cost depends heavily on how long you stay.
| Item | Value |
|---|---|
| Desks / m² per desk / area | 60 / 10 / 600 m² |
| Rent, per m² a year | 300 |
| Service charge / property tax / running costs, per m² a year | 60 / 40 / 50 |
| Rent-free on a five-year lease | 6 months |
| Fit-out, per m² / furniture and IT, per desk | 700 / 2,000 |
| Agent and legal fees | 30,000 |
| Dilapidations at lease end, per m² | 100 |
| Discount rate | 6% |
| Flex price, all-inclusive, per desk a month | 650 |
| Cost | When | Amount |
|---|---|---|
| Rent | Each year | 180,000 |
| Service charge | Each year | 36,000 |
| Property tax | Each year | 24,000 |
| Running costs: energy, cleaning, maintenance | Each year | 30,000 |
| Annual occupancy cost | 270,000 | |
| Rent-free, six months | Year 1 | −90,000 |
| Fit-out | Day one | 420,000 |
| Furniture and IT | Day one | 120,000 |
| Agent and legal fees | Day one | 30,000 |
| Dilapidations | End of year 5 | 60,000 |
| Total over five years | 1,890,000 |
Divided simply, 1,890,000 over 60 desks and five years is 6,300 a desk a year, 525.00 a month. That ignores timing: 570,000 is spent on day one and the dilapidations at the end.
Equivalent annual cost = PV of all lease costs / annuity factor (payments in advance)
PV at 6 per cent, annual costs paid in advance: 1,730,414. Spread level over five years in advance: 387,542 a year, which is 6,459 a desk a year or 538.25 a desk a month.
In Excel: =-PMT(6%, 5, NPV(6%, C3:C7)+C2, 0, 1)/60/12, with everything paid on day one, including the first year of occupancy net of rent-free, in C2 and the payments of years one to five in C3:C7.
The flex office at 650 for 60 desks costs 468,000 a year. Over five years its present value is 2,089,669, which is 359,255 more than the lease, 20.8 per cent. For a stable team committed to five years, the lease wins; the break-even flex price is 538.25.
The lease's upfront costs barely change with the term, so a shorter lease spreads them over fewer months. Rent-free shrinks too; here it is assumed at 1.2 months per year of term, capped at six.
| Term (years) | Rent-free (months) | Lease, per desk per month | Cheaper |
|---|---|---|---|
| 1 | 1.2 | 1,220.28 | Flex |
| 2 | 2.4 | 794.80 | Flex |
| 3 | 3.6 | 652.63 | Flex, just |
| 4 | 4.8 | 581.28 | Lease |
| 5 | 6.0 | 538.25 | Lease |
| 7 | 6.0 | 497.03 | Lease |
| 10 | 6.0 | 466.42 | Lease |
The crossover sits at about three years. Below it, flex is cheaper on cost alone, before any value is put on the option to leave.
A lease fixes the space; flex lets you hand desks back. Suppose the team falls from 60 to 40 after year two. The lease still costs 1,730,414 in present value. Flex falls to 1,696,283: 34,131 cheaper over the same five years, despite costing 650 a desk. The flex premium is a price for that option, and it pays when headcount is genuinely uncertain.
The lease figure assumes the fit-out has no value at the end. A tenant that renews keeps using it, which lowers the real cost of the second term; a flex contract never builds anything you keep.
Put both options on one monthly figure per desk. Here a five-year lease costs 538.25 and flex 650; at three years the two meet, and with a shrinking team flex wins even over five. The landlord's side of the same arithmetic, the total occupancy cost a tenant compares when choosing between buildings, is treated in Office Real Estate, and the free working documents for the book include a page setting total occupancy cost against three competing buildings. The occupier's full cost per desk is broken down in how much an office costs per desk per year.
Add the annual occupancy costs, rent, service charge, property tax and running costs, to the upfront fit-out, furniture and fees and the dilapidations at the end, less any rent-free. Take the present value and convert it to a level monthly amount. On 600 m² for 60 desks over five years that is 538.25 a desk a month, against 525.00 if the timing is ignored.
When the commitment is short or the headcount uncertain. At an illustrative 650 per desk per month, flex beats a lease of up to about three years, because 570,000 of fit-out, furniture and fees cannot be spread far enough. At four years the lease costs 581.28 and wins. If headcount drops from 60 to 40 after year two, flex is 34,131 cheaper in present value even over five years.
Because its price includes everything a lease leaves out: fit-out, furniture, running costs, reception and the operator's margin and void risk. Compare per desk, not per square metre. Flex operators also plan at higher density; at 8 m² a desk instead of 10, the lease here would cost 439.93 a desk a month rather than 538.25.
This article is one calculation from Office Real Estate. The book takes the same case from first principles to the decision, chapter by chapter, and every figure it prints is a live formula in the free companion workbooks.
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