SMEs are often unprepared for true costs of moving office. James Mulhall, MD of Murphy Mulhall, explains how the costs can add up

As companies return to the office following the pandemic, many are facing big decisions around office space and considering whether an office move is the best option.

In 2021  there were 160 letting transactions recorded in the Dublin office market, and almost 90% were to companies in the SME sector. In my experience of working with these companies, the vast majority are simply unaware and unprepared for the costs involved.

While most SMEs are generally well informed on office market conditions, they frequently underestimate the time it takes to complete an office leasing and moving process.

Typically, it’s a 6 to 9 month journey. That’s the reality. By the time you undertake the office search and selection process, negotiate lease terms, navigate through the typically slow legal process and undertake the fit-out, the months slip by.

The amount of client input required can also be substantial and is required throughout the process, from the initial premises decision to legal meetings and fit-out consultations. This can prove stressful, particularly for those who are not experienced with this type of project.

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Deciding how much office space you need is critical. All charges (rent/rates/service charges) are a multiple of the square footage you will physically occupy

My longstanding rule of thumb guide on this is to apply a rate of 100 sq.ft of office space per person. This rate factors in a kitchen/canteen area together with some meeting spaces and general circulation.

Therefore, a company with 50 people working consistently in their office space should seek circa 5,000 sq.ft of Net Internal Office Area, or NIA as it’s known in the industry. It’s not a one size fits all guide but it’s a great starting point.

Quoting office rents have remained stubbornly high over the last two years. However, SMEs need to remember the key word here is ‘quoting’, which refers to the gross rent. As part of an overall leasing deal, rent-free incentives and lease flexibility will be offered as part of the negotiations.

Typical rent free periods are running at 1 month per term certain offered, so a 5 year lease should come with 5 months’ rent free.

In addition, local authority rates and building service charges can also apply adding another c.€15 per sq.ft on top of the rental charge.

When moving from one premises to another, clients are often unaware that they may have exit costs from their current office. These costs are referred to in the industry as ‘dilaps’ and are referenced in the Yield Up provision in leases.

Simply put, this provision requires office space to be returned to the original condition it was received in at the start of the lease, i.e. removing all partitioning, furniture, equipment etc. or alternatively pay a sum of money to the landlord in lieu of same costs.

Dilaps need to be factored into the overall cost of an office move if applicable. Again, this ‘hidden’ cost can come as a surprise to some. The industry rule of thumb is approx. €30 per sq.ft.

Another office move budget surprise is fit-out. With rising construction inflation in the last 12 months, the cost of fitting out new office space (partitions, glazing, office furniture, data installation and labour costs) has risen by up to 40%.

SMEs should be factoring a range €60 to €100 per sq.ft on office fit-out depending on quality and specification.

Moving office can be an exciting and integral part of business growth.  My advice for a smooth journey through the process is to hire an experienced Office Tenant Representation Broker, use an efficient firm of solicitors and get solid advice on fit-out costs at the outset.

This will help minimise the amount or your time that’s required and allow you to get on with what you do best – running your own business.