Leasing an Office: Long Term vs. Short Term

Renting a new office space is an important decision for any company to make. And, in addition to all the choices you have to make about the office's type, location, decoration, and more, a big decision you'll have to make is the length of the lease that is right for you. 

Many office space leases offer up different time frames such as long term and short term leases, which offer businesses greater levels of flexibility or certainty. Both short term and long term leasing options have their own advantages and disadvantages, which we'll be breaking down to help you make the right choice for your company.

What is a long term lease?

A long term office lease is an agreement between a landlord and tenant for the rental of a commercial office space. These more traditional types of lease can last anywhere between 5-10 years, with some landlords even offering longer rental periods. Offices that are rented out through long term agreements often come unfurnished.

Pros of a long term lease

Stability

A significant benefit of signing on to a long term lease is the sense of stability it provides. There won't be any worries about evictions and relocations during the entire duration of the lease. Organisations are also able to establish a strong presence in their chosen space and local area, which can be beneficial for business. 

Plus, a long term lease can reduce hassle for employees and your organisation's leadership. All employees are able to focus on their work without having to be distracted by frequent relocations, while decision-makers don't have to worry about looking for a new office space for the future. 

You also won't have to worry about any unexpected rent increases or any premature evictions. If the landlord decides to sell the property, you'll be able to maintain the same rental costs and conditions until the contract expires.

Can be more affordable

Some landlords are more likely to offer you a better price if you're signing a long term lease as they prefer the stability and continuity that long-term tenants provide. By committing to a long term agreement, you're more likely able to negotiate lower rent rates and other more favourable terms such as tenant improvements.

A long term office lease also means you won't have to worry about additional expenses incurred from moving offices and using relocation services. This is a key consideration because moving offices can be surprisingly expensive.

More time efficient

Moving to a new office space can take quite a bit of time, and if you find yourself moving between offices fairly frequently this can disrupt your company's productivity levels. By renting a stable office on a long term lease, you'll be able to minimise the number of times you'd need to move to a different space, thereby minimising any chance of disruptions to day-to-day business.

Cons of a long term lease

Rigid terms

When signing on to a long term commercial lease, it's unlikely that you'll be able to terminate the contract before the agreed end date. Although you may be able to find more flexible landlords who are willing to offer reasonable break clauses within the agreement, oftentimes you'll have to pay a large sum to terminate the contract early.

If your business encounters financial troubles, or if it quickly expands and requires a larger space, you won't have the flexibility of easily moving to a new property. You'll need to continue paying rent for an office space that doesn't suit your company's needs.

This was a problem we saw a lot in throughout the Covid-19 pandemic where companies found themselves stuck paying high rents for huge offices that were far bigger than their remote or hybrid-working employees actually needed. 

In short, if your business' situation changes, these long term leases can mean lots of money down the drain. 

Complex negotiations

While you may be able to negotiate better terms with long term rent agreements, you'll also have to be prepared for a longer and more tedious process to secure the lease. Both the landlord and tenant will have to spend more time working out the lease agreement, which can lead to the process dragging on.

For businesses that need a new location quickly with minimal hassle or negotiations, long term leases are therefore far from ideal. Companies in this situation can benefit instead from a serviced office or coworking space where the team can move into a fully-furnished space almost immediately. 

What is a short term lease?

As the name suggests, a short term lease is any commercial lease agreement that lasts for a short period of time. Different landlords may define 'short term' differently, with short term sometimes referring to any lease lasting less than five years, three years, or even one year. 

Many different types of flexible office spaces offer short term leases, including managed office spaces, coworking spaces, and serviced offices. 

Pros of a short term lease

More flexibility

Perhaps the biggest and best benefit of short term leasing is the increased flexibility it offers your business. Knowing that you can change, upgrade, or downsize your office space in the short term more easily allows businesses to adapt to the times, whether that means moving to a bigger workspace because of a rapid expansion or downsizing for a hybrid or remote-first team. 

Short term leases also provide more opportunities for experimentation and innovation, as businesses can test out new spaces or properties without having to worry about being locked into a long-term commitment. 

Less commitment

This benefit is especially important for those operating a small business or startup and aren't sure if they're able to commit to a longer rent agreement. Longer leases can be financially risky to sign on to so by opting for short term rentals, companies are able to minimise this risk. 

More likely to be furnished

Short-term lease office spaces are also often already furnished, especially serviced, semi-serviced, and managed buildings. This makes shorter leases a great option for those who don't have the time or means to relocate their own furniture, as well as smaller businesses who may not have the budget free for furniture buying yet. 

Cons of a short term lease

Sometimes more expensive

Short term office leases can sometimes be more expensive compared to long term agreements, although this depends on the provider and the terms of the lease. This is because landlords often are more willing to negotiate lower rent costs with long term leases due to the added security they'd receive in terms of cash flow. With short term leases, you may also be subject to an increase in rental rates with each contract renewal, depending on current market trends.

However, with office providers that specialise in short term leases, this is less often the case. A managed or serviced office provider's business model is very different to that of a landlord offering long term leases on traditional offices. For these providers of flexible office space, short-term leases are their main mode of operating and therefore they can provide cheaper rents. 

May be less stable

While short term office leases offer the benefits of increased flexibility, the flip side is that they are less stable in the long term. For well established businesses looking for their company's long term home, therefore, this may be far from ideal. From this perspective, a short term lease may seem risky as the landlord may choose to evict or raise rent costs for the tenant. 

Moving to a new property can also have an impact on a business' stability, as there's a possibility you'll lose a portion of established clients and more time and resources will be spent re-establishing the business in the new space.

However, this must be weighed against the benefits of the lower commitment levels and increased flexibility that short term office leases offer. For businesses that want to remain agile, this lower level of stability may be a welcome price to pay for the extra flexibility. 

Short term vs long term leases: What's the best option for my business?

So, should you look for a short or long term lease for your new office? The answer to this depends on a variety of factors including your budget, company size, objectives, and desire for flexibility or stability.

Long term leases on traditional offices are considered by many to be the default option, offering long-term stability. However, with many businesses' increasingly hybrid workforce and greater desire for flexibility and innovation, short term leases are rapidly growing in popularity. Whether your team has 20 people or 200, short term leases on office spaces can have major benefits for all types of companies. 

If you're looking for a new office space for your business, our team here at Future Squared are ready to help. Specialising in matching businesses with flexible offices in amazing locations, we offer a wide range of different office sizes and lease types to suit your needs. Contact us today and we'll help you locate the perfect home base for your business, or use our office search tool to start looking for your new space.