Comparing office proposals on the same basis

Start by making the rents the same kind of number

A commercial proposal quotes rent per square metre of lettable area per year, either net, where outgoings are billed on top, or gross, where they are inside the figure. A serviced proposal quotes a single monthly amount per desk or per suite with almost everything inside it. Before anything else, decide on one basis and convert the other proposal to it. For most tenants the useful basis is total occupancy cost per month, because that is what leaves the bank account.

For a net lease that means rent plus the outgoings estimate. For a gross lease it is the figure as quoted. For a serviced office it is the monthly fee. Check GST on all three: the market convention is to quote exclusive, and a proposal that happens to include it will look ten per cent dearer than its neighbour until you correct for it.

Turn incentives into effective rent

A rent-free period, a fitout contribution or a rent abatement is money the landlord is giving back over the term. Two proposals with the same face rent and different incentives are different prices. Spread the whole value of the incentive evenly across every month of the term and take it off the monthly rent; the result is the effective rent, and it is the only rent figure worth comparing between two leases.

Do the same with what you are giving up. A larger bank guarantee ties up cash for the whole term, a longer lease commits you for longer, and a make-good obligation is a cost at the end that a serviced agreement never carries. None of these are rent, but each one belongs in the comparison.

Add what you will actually use

The headline figure on a serviced proposal usually excludes meeting rooms beyond a monthly credit, car parking, printing, dedicated bandwidth and after-hours air-conditioning. A commercial proposal excludes furniture, internet, cleaning, reception and utilities altogether, because you arrange them. Estimate a normal month for your business, price those items against each proposal, and add them in. This is the step most comparisons skip and the one that most often changes the answer.

Divide by the people you will seat

Finally, divide each total by the number of people you will actually put in the space, not the number the floor plan says it could hold. A conventional floor needs room for meeting rooms, a kitchen, reception and the space between desks, so a headcount that fits comfortably on a serviced proposal may need a good deal more lettable area on a commercial one. Cost per person per month, on the same basis, with incentives and extras included, is the comparison. Everything before it is presentation.