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The Risks of a Long-term Office Lease in Singapore

December 11, 2015 | Sharon Cheong

Singapore, being a global business hub, has all kinds of new enterprises emerging in every corner of the country. Once you have decided to start your business in Singapore, at some point, getting the right office solution for your needs will become necessary. For many companies that focus on the customer, taking the correct lease terms for an office space is a matter of success and failure. Many startups in Singapore sign a long-term lease agreement, and then find out that they are into a bad deal. Not only they pay a higher rent for the entire lease term, but the services they get are also compromised.

 Not being satisfied with the office may translate into adverse effects on the business. Keeping that in mind, here is why a business must not get into a long-term lease arrangement in Singapore:

Less working capital:

While it is comparatively easy for a startup in Singapore to get the required investment, many of the businesses are seen exhausting their working capital in paying for an office that would be useful for them after at least a year. This loss of flexibility that comes with a long-term lease closes doors for several other investment opportunities. In addition, if the monthly rental is too high, there won't be any option to downgrade, which ultimately causes negative cash flow and liabilities.

Property may lose relevance for the business:

You may have taken an office in a prime location, but in due course of time, the location may not remain as important for your business as other things. Moreover, the location that was once strategic may lose its importance with time. If your business depends on factors like image and location, then opting long-term lease may force you to hold back your ambitions.

Limited financial benefits:

In case your business grows as per your expectations, you may find yourself in a position to buy your office in a short time and benefit from the appreciation in the value of land. In this case, lease payment becomes a burden as your expenses are locked for the period of the lease term.

Debt:

While the money spent on lease does not appear on the balance sheet of a company, investors still consider long-term lease as the debt and value the business accordingly. The objectives of wealth maximization cannot be achieved with a long-termlease.

Limited access to other loans:

As investors treat thelong-term lease as a debt, it is often difficult for a business on a long-term lease to raise other forms of debt from the market.

Processing and documentation:

In most cases, to enter into a long-term lease agreement, it takes a lot of documentation processing and thorough examination of the leased asset. Remember, one single mistake in this process can cost you a significant amount of money.

Where to look for best office deals in Singapore?

Raffles Place

With the highest concentration of A grade buildings, Raffles place is the most sought after destination for thriving businesses. The area is also known as the Wall Street of Singapore.

Cecil Street | Robinson Road | Shenton Way

This is an important trunk road in the central business district of Singapore that continues to be a prime office location in Singapore.

Tanjong Pagar

A popular choice for various business service groups, real estate firms, trading companies and media advertising firms, Tanjong Pagar offers both older and new buildings for office rentals.

Suntec City

Suntec city is popular among the IT companies, law firms and serviced offices. It is located next to the country's two most prestigious buildings- Milenia Tower and Centennial Tower.

Dhoby Ghaut | Somerset | Orchard

Home to Singapore's major retail stores, hotels, and entertainment centers, this is one of the Singapore's prime shopping areas. Due to the convenience, prestige and the infrastructure the region offers, many of the new startups are opening their offices in this area.

Conclusion

Research suggests that a business can save as much as 78 percent taking a serviced office rather than hiring conventional office spaces in Singapore. With a serviced office, a business can do away with all the hidden charges and capital outlays that are inherent in a lease agreement.

For those looking for a workplace solution in Singapore, you cannot get a better deal than Servcorp. With high flexibility and cost effectiveness, the customized office solutions offered by Servcorp fit the needs of any business. Give us a call at +65 6690 6161 and have one of our representatives addressing your office needs in Singapore.