Investing in a serviced office could be one way to get exposure to the office market.
Although I don't personally have any office investments as part of my property portfolio, I believe that a well chosen serviced office investment could be a great addition for any commercial property investor.
The concept of serviced offices is not new – I used one way back in the 1990s in Newcastle when I was involved in a large commercial development. My partners and I rented serviced office space close to where the development was. The advantages were that it was fully furnished, had a receptionist, had a boardroom and office equipment such as a fax photocopier printer.
The lease was shorter than we would have had to sign if we rented a dedicated office space. The worked well for us, I remember sharing space with a finance broker, and insurance person and a sales agency. Serviced offices appeal to one and two-person operations – many new start-up consulting firms have resulted from people being made redundant from larger businesses. This way they can have a business presence with an office in the city without the huge setup costs.
Servcorp – one of the major operators in Australia recently posted a profit of $37.3 million– huge positive cash flow for them. Often consultants or one person businesses could easily work from home but they do enjoy the benefits of contact with other business people that’s a city-based service office can provide.
How could you benefit as a small commercial property investor?
One area that I see could be a winner is where investors have a space that is well located, for example, first-floor office space or a residence above a shop. Of course, city locations are probably going to be the best, but if it's a well-located suburban building, it could work as there is demand for service offices in these locations as well.
It could work like this: furnish a two or three office space and supply phone and the internet. If the space is larger, say five or six offices consider modeling on the large operators and supply a receptionist and other facilities.
The per square meter rate will be a lot higher than leasing an empty space. Its really all about thinking outside the square to increase you cash flow and returns from your commercial investment.