How to calculate office space cost?
How much does office space cost for your business? Learn how to calculate office space costs based on rent, utilities, maintenance, and other factors. Find out how to compare different options and save money on your office space. Read this article to get started.
You have added more people to your staff – a café or your house is no longer a suitable place to run your business. How much does it cost to rent an office space? How does it compare to building your own? Let’s consider some answers to these questions about office space cost.
1. Four important factors that influence the costs of office space
There is no standardized classification for building standards in Vietnam. There are only unofficial, rule-of-thumb lists that indicate building quality, such as this list. These lists give us a rough idea on what to expect when setting up an office space.
When grading office buildings, these lists take into account the following factors:
- Economic conditions
- Size and layout
- Building amenities
Prime areas for offices in Ho Chi Minh City are:
- District 1: central area of business, convenient but expensive. Check out our flagship co-working space on Le Thanh Ton street.
- District 3: next to district 1 with slightly cheaper amenities but still well connected.
- District 7: the urban area of Phu My Hung is well-developed and attractive, but the rest of District 7 remains patchy. If you are in manufacturing and warehousing, District 7 is a good choice because of the large factories and a river port nearby.
- District 2: the urban area of Thao Dien is a well-known expat area with expat-oriented residences and restaurants. Best for startups and expat-dominated service businesses. Check out our Sentry P co-working space in the heart of Thao Dien.
Districts 1 and 3 are best served by main city routes and public transport and have good rideshare availability. Getting transport can be harder in Districts 2 and 7 during peak hours.
Spreading out from the centers and closer to the airport, Tan Binh and Phu Nhuan districts have a range of large office buildings at more affordable prices. However, traffic congestion during peak hours is a serious problem that can affect your timekeeping. Flexible working hours may be needed to counter this problem. Check out our Orbital office in the Quang Trung IT Park in District 12.
As of 2023, office space costs are increasing as Vietnam emerges as an economic powerhouse. All major cities like Hanoi and Ho Chi Minh City (HCMC) always have high demands for office space. To save on costs, you may want to consider smaller cities like Da Nang, Hai Phong, Binh Duong, or Bien Hoa (especially for manufacturing). Also, consider remote work policies to go beyond the local limitations.
1.2. Size and Layout
More space means higher costs, obviously, but also consider the interior layout. Does the space have a former life as a private residence, or has it gone through a complete reconstruction? The former may be open to negotiation because the landlord is looking for short-term gains. Landlords with more capital and long-term solutions can afford the latter, and tend to offer standardized pricing.
1.3. Building Amenities and Fees
You can expect workstations, bathrooms, pantries, lounge areas, reception, elevators, and green space, in an air-conditioned space. Huge buildings often have cafes and ATMs. Specially built office spaces also partner with a gym in the same building, or offer shower stalls and napping rooms (taking midday naps is part of Vietnamese business culture).
Large buildings may have a parking space in the basement, especially the office buildings in the outskirts. Smaller office spaces, especially in District 1, hire space in a parking ground nearby.
The location of parking spaces matters a lot during the rainy season when your staff has to walk to their vehicles in the rain.
2. How to calculate office rental cost?
Your total office rental costs includes:
- Regular fixed costs
- Additional costs
- One-off cost
2.1. Fixed costs
These are the fixed costs that must be paid when renting office space. Calculated per square meter per month, they range from USD1 to USD30/sqm/month.
Calculated per square meter per month.
Note that the rental cost can be fixed for the duration of your contract, which could be between 2 and 3 years.
Management or service cost
Covers building maintenance and operation, such as reception, security, and pest control. Calculated by square meter per month, ranging from USD2 to USD10/sqm/month.
Reclaimable with a business invoice, VAT adds 10% to the total rental and management costs.
If the building has a third-party management, such as CBRE or Savills, then an additional 10% VAT is included, meaning you will have to pay 20% of VAT.
2.2. One-off costs
You pay these costs one time upon moving in and moving out.
Renovation service cost
Before moving in, you may want to renovate the space to fit your brand image and usage needs, such as adding partitions for meeting rooms. The buildings often take care of the office setup. Your rental costs are waived during this time, but a service fee applies per square meter per month. This fee ranges from USD1 to USD7/sqm/month.
Paid upon the end of your contract, this cost covers cleaning and dismantling of interior design and partitions when you move out.
2.3. Additional fees
The additional fees cover services on demand, so you only have to pay for actual usage:
- Overtime fee
Some buildings include these fees to the total management fee for simple pricing.
When your staff works overtime, the building may charge additional fees by the hour, space, or air conditioning (AC) usage.
- By the hour: USD10/hour
- By the space: USD1/square meter/hour
- By AC usage: USD8/air conditioning/hour
Some free parking space comes with your rental space, but if your number of vehicles exceeds the limit, an additional monthly parking fee may apply.
Include electricity and water. Paid upon the monthly electricity bill.
2.4. Case study: Calculating the total office rental costs for the 1st month
Let’s say you are thinking of renting a 300-square-meter office space with this pricing:
- Rental cost: $15/sqm/month
- Management cost: $5/sqm/month.
- Service fee during renovation: $3/sqm/month.
- VAT 10%
This is how to calculate the cost:
- VAT = (rental + management) * 10% = $2/sqm/month
- Total rental cost per square meter = 20 + 2 = $22/sqm/month.
- Monthly rental cost = $22 * 300sqm = $6,600/month
- Total service fee during renovation: $900.
- 3-month deposit = $19,800/month.
- Total upfront payment = deposit + monthly rent + service fee = $27,300.
3. Cost to build office space
Are you owning or renting? This is the question for your business if you are pursuing a long-term strategy.
Overall, building your own office space is more cost-effective in the long run. Most landlords ask for a 2-year commitment on rental contracts, not to mention rising prices. The total cost of renting may go up to billions of VND.
This capital can instead contribute to your total costs of owning, which contributes to the company’s real estate assets. You may profit from real estate sales or leasing. At the same time, you can avoid the uncertainties and lack of control in renting.
When building your own office, you may have double the space compared to an inner-city office. This solution is suitable for capital-rich businesses with a large staff and lots of equipment, vehicles, or infrastructure. Those with real estate as part of their business model may also benefit from this choice.
These factors influence the total cost of ownership:
- Land acquisition
- Construction and Design
- Licensing and permits
3.1. Land Acquisition
While you may be able to rent an office space in a central location, you will be hard-pressed to find land for sale in the inner districts. You will have better chances in the outer districts, such as District 2 and District 9. There, a 100-square-meter piece of land may start from 8 billion VND.
3.2. Construction and Design Costs
Construction costs may start from 3 million VND per square meter, and design costs start from 4.5 million VND per square meter. It is wise to partner with a trustworthy construction company to determine the timeline and financing that works for you. For example, you may want to lease completed areas while other areas are being built to maximize your construction waiting time.
3.3. Licensing and Permits
Legal and bureaucratic expenses include land ownership certificates and construction permits for commercial real estate. Your construction partner should know the local experts who can expedite a smooth application for these paperwork.
4. Get an estimate of office space cost with The Sentry
Renting an office space involves a number of factors, depending on your business’ scale and goals. Worried it will take a lot of time off your core tasks? Let us help you. The Sentry provides beautifully designed, well-ventilated, and superbly equipped office space in central locations. Our office space solutions can satisfy aspiring solopreneurs, emerging startups, or even a growing company needing temporary space for a new department.
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