What is CapEx?
CapEx (short for Capital Expenditure) refers to the money a business spends on buying, upgrading and maintaining physical assets such as office space.
What Is The Difference Between CapEx and OpEx?
CapEx is typically a one-time or infrequent investment that will benefit the business in the long term.
OpEx (Operational Expenditure), on the other hand, refers to the ongoing costs associated with running a business, such as rent, utilities and internet.
The easiest way to differentiate between the two is by determining whether the expenditure is a one-off payment (CapEx) or an ongoing expense (OpEx).
Types of CapEx
• Expansionary: These are the costs spent to grow the business, such as opening a new office location or upgrading IT systems to support a growing team.
• Maintenance: These are the costs incurred to keep the business running, such as replacing old furniture or repairing heating systems.
Maintenance Capital Expenditure can be confused with Operational Expenditure (OpEx). However, it is essential to note that Maintenance CapEx remains a one-time cost, not an ongoing expense.
Examples of CapEx Purchases
The most common examples of CapEx purchases when renting office space are:
• Office Furniture: Workstations, chairs and storage.
• Fit Outs: Partitioning the space, flooring, and decorating.
• IT Infrastructure: Data cabling and servers.
• Security Systems: CCTV and access controls.
• HVAC Systems: Heating and air conditioning.
CapEx For Renting Traditional Office Space
Renting a traditional office space can involve a high CapEx. Traditional/leased offices are usually unfurnished and rented on a long-term basis, which requires the tenant to fit out, furnish, and customise the space. In some cases, tenants may be required to return the office to its original condition (dilapidations), which adds further capital expenditure.
How do Serviced & Managed Offices Reduce CapEx?
Serviced offices can eliminate CapEx. These spaces are fully furnished, ready to use, and everything, including rent and utilities, is included in the monthly cost. Therefore, serviced offices are considered an operational expenditure (OpEx) rather than a capital expenditure (CapEx).
Managed offices can be seen as a middle ground between serviced offices and traditional leased space. As managed spaces offer scope for customisation, which is sometimes paid for by the tenant, they don’t eliminate capital expenditure completely, unlike serviced offices.
In our experience, we have found that a lot of companies, especially in London, rent serviced or managed spaces to reduce their CapEx.
CapEx Clauses in Office Rental Agreements
CapEx clauses are specific provisions in a lease agreement that allocate responsibility for certain capital expenditures to the tenant. These are commonly found in traditional leases, and we often find they catch clients off guard if they’re not properly reviewed.
Typical CapEx-related clauses include:
• Requirements to pay for and organise fit-outs.
• Obligations to upgrade and maintain infrastructure, such as cabling and air conditioning.
• Dilapidations, which require the tenant to return the space to its original condition at the end of the lease.
Serviced or managed offices typically don’t include CapEx clauses as the space is fitted out, maintained and managed by a provider. However, it is always important to check, as some contracts may have a dilapidations clause.
Businesses That Can Benefit from CapEx-Free Offices
As mentioned, serviced offices are CapEx-free because organisations don’t need to pay for furniture, fit-outs or infrastructure. Any type of business can benefit from a CapEx-free office, but the following types of companies have told us just how beneficial it has been for them.
• Startups: Many startups we’ve worked with have said that they’ve opted for serviced offices to preserve as much cash as possible whilst still having flexibility.
• Small businesses: Smaller organisations have told us that paying no CapEx allows them to plan their financial outgoings more effectively, and they prefer the predictable monthly costs.
• Fast-growing companies: Companies which are rapidly expanding have shared with us that avoiding capital expenditures gave them the flexibility to scale up or down with ease. They didn’t want to invest in an office space which would be outgrown in a few months.
• Hybrid teams: Hybrid teams have told us that CapEx-free offices give them a flexible base, especially when they were looking for office space to rent in cities such as London or Manchester.
• Project-based teams: CapEx-free offices are the perfect option for teams working on short-term projects. They’ve told us that they chose serviced offices
as it was unnecessary to pay high upfront costs for a space that will be vacant soon after.
CapEx plays a bigger role in office space rental than most organisations realise. Traditional leased spaces often come with unexpected, significant costs, which can put pressure on finances and limit flexibility, especially for growing businesses.
Serviced and managed offices provide a great alternative with no capital expenditures. Whether you’re a start-up, a small business, or a large established company, serviced and managed offices offer flexibility and simplicity.
