23/11/2007
Finding the right spot for your business is essential if you want to send the right message to clients in convenient and comfortable surroundings. But it's not all about the aesthetics, as Louise Druce discovers.
Finding a business premises is a lot like finding a new place to live: you want the best location at the right price that is not only comfortable to stay in but has adequate room for occupant growth and the potential for you to modify it to really make it your own.
But as any meticulous house-hunter will know, once you have found the ideal place, it's not simply a case of moving in. Surveys, insurance and the potential minefield of the small print all have to be negotiated before you've even packed a box.
First of all, you need to know where to look for the right spot. If you don't fancy using the services of a commercial agent or surveyor, local newspapers, the web, the local council, estate agents, boards outside of premises and sometimes trade associations can all be a good starting point. A lot depends on whether you want to rent or buy, with both having advantages and drawbacks.
A capital idea
If you have capital available for investment, buying business premises can be a cheaper option than paying rental costs and offers more freedom over what you do with the place - subject to planning permission and any mortgage conditions, of course. The firm retains control over the maintenance of the building, can rent parts of the premises out, can sell up when it wants to and possibly profit from the proceeds.
There is always a 'but'. In this case, it comes in the form of risking money that could be ploughed back into the business and turn the building into negative equity. Business owners also need to weight up the burden of being responsible for costs such as stamp duty land tax, fees for searches, business rates, local authority charges, insurance, alterations and repairs, lighting, heating, security, safety...the list goes on.
That's why most small businesses prefer to rent. Some say renting is "dead" money but it also comes with a different degree of flexibility. Yes, there will still be considerations such as service charges, stamp duty, utility bills, business rates and the rental cost itself. The Royal Institute of Chartered Surveyors (RICS) also recently reported tenant demand for commercial property is currently taking a hit at the moment.
However, on the plus side, businesses are not tied to the building in the same way, being able to choose the length of rental agreement rather than being locked in indeterminately and often having the chance to negotiate on certain terms.
The most popular type of configuration for most businesses is open plan, all on one floor,
says Robert Leigh, director of Devono, a commercial property company in London that exclusively represents tenants.
If you want to buy, one storey buildings don't exist so you would either have to jeopardise the general buzz and communication in a business by being on several floors or you could buy a much bigger building to fit on one floor and, if possible, rent out the additional floors, becoming a landlord yourself. This market isn't too profitable.
Value for money
The majority of rented buildings already come with cabling and carpets etc, but Devono also looks at the type of industry its clients are in when selecting possible premises.
Recruitment firms, for example, have lots of potential candidates coming through the door and want to impress straight away, making the entrance area and reception all important. Media companies, on the other hand, often look more to buildings that are "rougher round the edges" with character. Infrastructure also needs to be thought out. As Leigh explains, you wouldn't want to put an IT company in a run-down period property without raised floors.
A few premises have strict rules about the kinds of firms it welcomes. "Some retail parks stipulate exactly the kinds of shops that can operate from them," points out Nikki Cann, associate director of the National Association of Commercial Finance Brokers. "For example, in Norwich a well-known clothing retailer wanted to move into a shop on a retail park but the covenant stated the premises had to be used for the sale of white goods and nothing else. Needless to say, the move didn't go ahead."
There are two main types of rental agreement: leasing or shorter term licensing. An average lease lasts between three and 25 years but it is always wise to check the terms and conditions. The length can sometimes also be negotiated with the landlord. Licensing agreements, however, usually only last a couple of years and can be a better option if you don't want to be tied into a long-term commitment.
Traditional leases are about 50 pages long so one of the most important things we advise is to get a survey done.
says Leigh.
Know what liabilities you are inheriting and also take a schedule of condition so that when you return the space to the landlord at the end of the lease there is no discrepancy on the quality of the space from when you first took it.
Look at all the options
In particular, Leigh recommends taking a more in-depth look at the principle rents, rent-free periods, dilapidation liability, break options (conditions for termination) and service charge provisions such as cleaning and heating.
We always try to cap a service charge, especially when you take into account the FRI [a repairing and insurance lease], which makes you responsible for the maintenance of the building.
He adds that alienation provisions need to be as flexible as possible. For example, can you sub-let parts of the building you don't need and, if so, what can you charge as some contracts stipulate this?.
If you have three floors and you only need two, you might what to condense the business onto both floors and let out the remaining floor," explains Leigh. "If you don't have the provisions, you might have to move out lock, stock and barrel because the landlord won't let you split the space. You don't want to go through the whole cost and upheaval of that when you could have negotiated a more flexible alienation provision from day one.
As a final note of caution, the NACFB, which is based in Exeter, is looking to move offices itself. Cann says brand new premises recently became available at a reasonable rental rate but by the time the rates, service charge and other outgoings were added on top, it bumped up costs by a third.
"Also worth bearing in mind is the initial outlay for moving, storage, fitting out the office, telephones and computers and furniture," she adds. And it's not just the props to be factored in. "There is also the time taken to project plan all of these things," says Cann, "not to mention the disruption to business as usual."
However tempting it is to take the DIY approach to finding new business premises, unless you can be 100% sure you know the market inside out and understand all the implications of the small print, it's always best to call in the professionals before signing anything. It does add to the overall bill but surely it is worth it to really feel at home in a place where you want to profit.