How to Save on Office Rent in Singapore
For businesses in Singapore, rent for an office space usually comes a close second to salary expenses. Besides being a large business cost, it is also a fixed cost. This means that a business will have to pay for a long-term, high-expense contract until the lease expires. No wonder many business owners find it a daunting experience choosing an office!
Fortunately, there are various options out there for business owners who need a space to work. This article takes you through a list of considerations which will help you save (a lot of) money.
- Should you even be getting an office space in Singapore?
- Characteristics of renting an office space in Singapore
- What kind of work space is suitable for your business?
- Co-working, Serviced Office and Surplus space?
- How to get the most value for your office space (tips and tricks)
Should you even be getting an office space in Singapore?
The cheapest way of getting a working space is… not to pay for one at all. Since you already have a house, working from home saves you the extra cost of a separate office space. You also save precious time on the commute between home and office. But working from home may not be suitable for everyone. It depends on your individual needs and personality, and the nature of your business. Below are a few points to consider:
|Your Individual Needs & Personality||Your Business|
|Do you get distracted easily?||Do you have a team?|
|Do you need motivation to work?||Do you have sufficient space?|
|Do you require flexibility?||Do your clients visit you?|
|Do you have personal commitments to attend to?||Can your business afford it?|
If you need someone to supervise or motivate you, then you might want to consider a co-working space. You could also “bunk in” with another tenant who has surplus office space. Like paying for a gym membership to force you to exercise, paying rent is a very good motivator for some. It makes sure you don’t waste time and stay focused. It spurs you on by being around other hard-working people who strive to deliver results. There is a cost to not being productive, after all.
Characteristics of renting an office space in Singapore
If working from home is not for you, then what kind of work space would be cheap and good?
Before jumping into renting, it is important to understand that there are other expenses to consider. These associated costs can add up if unaccounted for in your budget. Here are some industry norms when renting an office space in Singapore:
Lease Duration: Usually 3 years, some landlords offer longer leases for larger spaces. Implication: A longer lease offers predictability of rental expense, but the tenant will pegged in for the duration of the contract.
Rent (or Gross Rent): Gross rent is quoted on a “dollar per square foot” basis ($psf). Comprises of:
- Net Rent, which is the base rent
- Service Charge, which is to pay for the landlord’s expenses maintaining the common areas. Ranges from $0.80 to $1.40psf in office buildings. Implication: Base rent depends on the market rate space leased, and is fixed at the time of signing the lease. Service charge can be raised by the landlord within the tenant’s lease term to cover for increased landlord’s operating costs.
Condition of Premises: Handover condition is usually bare shell, with a raised floor and ceiling lights. Most office building landlords include air-conditioning during office hours. They also take care of the security and maintenance of common areas, which includes common toilets, corridors and lobbies. Implication: The tenant would have to renovate its space, fit it out with furniture, and subsequently maintain it (cleaning, utilities). This costs anywhere between $50psf to $150psf.
Rental Deposit: Usually 3 months’ rent but can go up to 6 months. Implication: Landlord usually collects a higher deposit if the tenant’s paid up capital is not significant. This is negotiable.
Insurance: Landlords usually insist that tenants take up an insurance policy for third party liability. Implication: There is usually a minimum coverage required by the landlord, though this is negotiable.
Stamp Duty: Paid to IRAS based on the rent in the lease agreement. Implication: This is payable by the tenant (but landlords can submit it for you)
Legal Fees: Landlord’s legal fees to draw up the lease agreement. Implication: Unfair as it sounds, it is usually payable by the tenant (~$2000 per contract). Negotiate for it to be split equally.
Fit-Out Deposit: A refundable deposit that tenant pays to landlord to carry out fit-out works before moving in. Implication: If there is damage to the building (eg fire sprinkler system) during your renovation, the landlord will deduct from this deposit. Tenants should get their contractor to fund this deposit, since the contractor is the one carrying out the work.
Property Tax recovery from tenants: Property tax on the unit is usually paid by the Landlord. However, most landlords require tenants pay any excess property tax charged by the IRAS on their leased premises. Implication: Negotiate to have it capped to your rent and not pay for the excess. Alternatively, ask the Landlord to raise an appeal to IRAS to dispute the property tax if it’s more than the actual rent you are paying.
Reinstatement: Landlords require their tenants to reinstate to the original condition in which they took over the unit, after the tenant moves out. Implication: Tenants have to reinstate the premises at their own cost. If you intend to leave your furniture behind, convince your Landlord that the next tenant is likely to want a fully-fitted out office.
As you can see, there are many issues to consider besides paying rent. Do consider whether your business can afford renting an office before signing on the dotted line.
What kind of office space is suitable for your business?
Depending on the type of your business, you may be restricted to operating in certain types of buildings. For example, if you are a 2-person interior design firm, you could rent a residential flat or condominium as your office. However if you have clients over very frequently, you will be disallowed from doing so.
As a result, the type of use zoned for a building allows it to command different types of rent. Rents are highest in retail, followed by office, residential and industrial buildings. The table below gives an estimate (may defer due to market conditions, size etc) of rents charged for the different types of spaces which can be used as an office:
|Gross Rent ($ per square foot/month)||Examples|
|Retail spaces||$12 and above||Ground floor of offices, shophouses, HDB shops etc|
|Office space||$5 to $12||Ranging from CBD Grade A office buildings to suburban office buildings|
|Office space||$3 to $5||Shophouses (level 2 and above)|
|Office space||From $300 per desk per month||Coworking, serviced offices|
|Home office||(home rental rates which depend on the specific development)||Residential developments|
Avoid retail spaces or ground floor shophouses if you don’t need the street frontage. These are priced much higher because they have visibility and human traffic. Most offices don’t need this for their business.
Look for upper levels of shophouses. These can generally be used for office space, and rents are very reasonable at $3-$5psf even in town (Telok Ayer, Amoy Street etc).
Rent spaces in Grade B office buildings if you would like a “proper” office in the CBD to be near your clientele. The office leasing market is competitive now due to surplus supply, and a Grade B office space (think those older buildings along Robinson Road/ Cecil Street/ Tanjong Pagar etc) can be had for $5psf to $7psf.
Rent spaces in Grade A office buildings if prestige is more important. Feel free to take your pick of the various new Grade A offices such as CapitaGreen and Asia Square Towers, and expect to pay upwards of $7psf to $12psf.
Industrial space might have restrictions. The cheapest space is industrial space, whose rent can be had for as low as $1.00 psf. One would need to fulfill certain criteria before being able to set up office in a space zoned as industrial. For example, E-business or media activity as defined by URA would be a qualifying use. Compared to getting a nice shiny office, you can expect to save on office rental by 2 to 6 times more!
As you can see, searching for your own office space is time consuming. Consider getting an agent if you need more help, especially since the landlord is the one who pays the agent’s commission. There are also many listings online (Commercial Guru, Gumtree, ST property etc) for you to search through if you already know what you want.
Co-working, Serviced Office and Surplus space?
As mentioned above, most spaces come unfurnished. To fit out in your company’s brand image and design, you would have to engage a contractor. This would involve spending money on painting, lighting, windows and flooring, besides furniture, internal partitions and other office equipment.
A few issues come to mind when this happens:
- Firstly, these capital expenditures are large. For a reasonably good fit out, you can expect to spend about $70psf-$100psf of space rented. If you’re talking about a funky, “Google” kind of office, then expect to pay about $150psf.
- Secondly, your contractor would expect payment after completing the fit out. This means that before you even commence your operations, you would have to fork out a large amount of money!
- Thirdly, for every new, growing business, questions like “how long can my business last” will be on the owner’s mind. Committing to a 3-year lease with all these upfront, sunk costs would be risky and wasteful if one were to unfortunately shut down after a year or so.
To reduce these upfront payments, you can choose to take up space in serviced offices, co-working spaces, or share it with other tenants who have surplus space. These alternative offices provide all the amenities and services that you would need for a monthly fee. If you don’t want to lock yourself in on a long 3-year lease, you can also rent the space on a rolling monthly, or sometimes even daily, basis.
Co-working spaces: Choose from a hot desk (ie clear your stuff at the end of the day), fixed desk, or have your own private office. Share the other facilities such as WiFi, printers, meeting rooms, pantry and reception areas with other tenants. It is worthy to note that co-working operators frequently organize seminars and networking events, in their aim to increase interaction between tenants and to build a community. Funky and informal, it is popular with millennials and businesses in the technology and startup scene.
Serviced Office: Similar to co-working spaces, but more formal, professional-looking and reserved. Popular with established foreign companies looking to set up a small outfit in Singapore. They also provide more services (eg the receptionist can answer phone calls on your behalf), but these come at a separate price.
Surplus space: With the uncertain economic environment, some companies have resorted to downsizing or find that they have overestimated their space requirement. As a result, they look to share some of their rent burden by bringing in other sub-tenants. As they will be sharing the same premises, sub-tenants are usually “curated” by the main tenant.
The downside is the lack of complete privacy and security. Yet, until your company is established and has the economies of scale to operate its own office, this would be a good choice to start out. Prices are comparable to renting, fitting out, and maintaining your own premises on a per head basis, ranging from $300 to $800 per pax.
How to get the most value for your office space (tips and tricks)
No matter what type of office space you rent, be it a CBD office, co-working or industrial space, always try to negotiate to minimize your costs. Here are some tips to aid in your negotiation:
- Landlords like to increase rents when tenants are due for renewal. Negotiate for an option to renew at prevailing market rents. Better still, ask for a rental cap (eg limited to 5% increase from previous rent) if possible.
- Choose a space that fits your team, but leave some room to grow. Ask for a right of first refusal to a currently vacant space, so that before the landlord lets it out, he will have to offer that space to you first.
- Conversely, create provisions for an early exit. You never know when economic conditions might turn unfavourable. Don’t be stuck in a long term lease when your business cannot afford it. Ask for the right to sublet, assign or give up space. Some landlords may agree if you give them a notice period before you exercise that right.
- Ask for a rent-free period or more rent-free time to fit out your space. Landlords will give 2 weeks to 3 months (depending on space leased) of rent-free fit-out time for the tenant to renovate his premises. Extend this time within the same lease tenure if possible.
- Negotiate for more car parking space allocated to your lease.
- Ask for an office that is fitted out with furniture and partitions. Taking over a fitted-out office will help you to reduce your upfront costs. It will also save you the downtime incurred from fitting out your office.
- Be efficient in use of space and you can max out the number of people in your office. As a benchmark, each person generally needs about 50sf of space (eg in a co working office), assuming you don’t need individual rooms. With a smaller space requirement, you won’t need to rent such a big office.
- If you are taking up a co-working/serviced office space and are fairly confident of staying for a longer term (ie 1 year), ask for a long term discount. All operators price in a premium for a shorter term lease.
- In addition, ask for a free trial period before you commit to them. There are many co-working companies mushrooming throughout town, and each can give you free hot-desk trial periods from 1 day to 1 month. Lastly, ensure that the fruits of your negotiation are documented in the lease or license agreement.
Getting the right type of office space will help you to make your business more competitive. If one doesn’t work from home, there are a number of office space options in the market that a business could take up. It ranges from retail space, to shophouse, to industrial and the traditional office space. There are also alternatives such as co-working, serviced office and sharing surplus space.
Negotiating will help prevent you from being stuck in the wrong situations, and aid you in getting the most benefit from the rent you pay. Hopefully, this article has helped you to save on rent and the associated costs to be incurred when renting an office space.
Finally, do note that rental is just one part of a business’s expense. As a business owner, you would have to find ways to increase productivity, and reduce accounting, tax, and other operational costs. Check out our article on “15 Bookkeeping Tips” to help you increase your productivity in accounting. As always, feel free to leave your comments below.