How do I find the right property for my business?
Last year was a record-breaker for the UK startup sector. Entrepreneurs from all walks of life worked to establish 581,000 new companies — helping to bolster the British economy and put scores of people back into work.
And with the UK government set to treble its commitment to kick-start new companies through its Start-Up Loans scheme, 2015 looks like it will be an even better year for small business owners.
Yet as more and more companies enter the UK market, overheads are continuing to soar. Rent costs on commercial properties have been rising steadily ever since the recession — and experts reckon those prices stem from a lack of supply.
“At the same time as a lot of companies are experiencing growth, the market is behind in terms of the supply and demand cycle, as many schemes were mothballed as a result of the recession and are only now underway,” explains Richard Fenton, director of the London-based commercial property consultancy Richard Henry & Co.
“There is a double whammy in many areas as it is now possible to change use from commercial to residential without the need for planning permission, so many office buildings have been lost to the market as owners take the opportunity to realise the much higher values provided by residential property — especially in central London with a knock on effect on the supply of commercial property.”
With that in mind, fledgling business owners would do well to tread carefully and ask plenty of questions when going about choosing their first premises. In fact, the fight to secure a great business property starts long before it’s time to sign the lease.
Don’t get tied down
The first step of any property acquisition is to sit down and develop a wish-list. Company owners have got to identify the key attributes that will be vital to the success of their business. For example, perhaps close proximity to the M8 will be necessary to ensure quick deliveries — or high-speed broadband will be needed in order to support IT management. Get what’s necessary, and try not to settle.
From there, it’s time to think about expansion.
Many successful startups will outgrow their premises long before their first lease is up; therefore, it’s worth planning ahead and coming up with an exit strategy.
“Over and above basic occupational information, business owners need to ask about flexibility and lease lengths,” Mr Fenton says.
“Whereas the 25 year lease used to once be a standard, much shorter leases are the norm, perhaps three or five years, or multiples thereof, ideally with break clauses. The world is a fast moving place these days, and things change quickly — so no business wants to be tied into a lease for too long so it can take advantage of new opportunities if they arise.”
Get an insider’s opinion
Finding the right property can be a fairly straight-forward process; however, negotiating a lease isn’t always that simple. Management companies and property owners tend to riddle documents with bureaucratic jargon in order to secure favourable terms for themselves — leaving tenants out to dry.
That’s why Mr Fenton reckons business owners of every calibre should be looking to industry professionals for guidance before they sign on the dotted line.
“The single most important piece of advice I have is that anyone looking for commercial property should take professional advice,” he says.
“Most business owners will only look for a commercial property once every five years, if that, so how can they expect to be on top of the commercial property market as well as running their own business on a full time basis?
“Being represented by an agent will save you time, money and give you credibility. I have known an occupier refuse to take advice, negotiate their own deal and be very happy to have agreed a two week rent free period with the landlord of their new property — even when the going rate for rent free periods has been six months or more.
“Fees can be negotiated, and there may be other options to explore; I recently agreed a fee with a client at a reduced rate in return for a testimonial to use in marketing material and recommendations to all that client’s own clients and suppliers.”
The UK’s commercial real estate sector can be a bit of a quagmire. Yet by asking the right questions and utilising a little forward planning, it’s possible to secure the perfect premises. Just remember: be patient, think ahead and never be afraid to seek professional advice.
Rachel Craig is part of the media team at Formations Factory and is responsible for developing and maintaining the online presence of the company. Formations Factory is a company formation service provider in the UK.
