Although buying or renting commercial property includes a lot of the same principles as the residential market, it requires a specialist understanding of the process.
Here, we outline what to look for if you’re a tenant in the market for a new office, retail, leisure or industrial space.
What are my options?
A tenant searching for commercial property will usually rent a space so their business can remain flexible. This approach also means that a large amount of capital isn’t tied up in property.
However, if your business plan means you’re able to purchase a commercial space, it’s best to view this as a long-term investment. If you’re looking at acquiring property and letting out some of the space to other tenants, commercial landlords can enjoy a consistent income.
Before you invest, make sure you have a firm grip on the market and do your research. Look out for current trends such as supply, demand and the availability of commercial property mortgages.
If you choose to rent a commercial space, such as an office, you won’t have to pay mortgage or business rate costs – which is why renting is such a popular option. Start-up businesses will often need shorter-term agreements that enable them to move as they grow.
Finding a commercial space
When renting a space, location should be one of the most important factors. Review the state of the local market, such as the number of properties available, rental prices and tenant demand.
If your business relies on attracting shoppers, speak to similar businesses and ask a local estate agent to advise on areas that are popular with consumers. If your business requires a workforce, make sure you choose a location that is easily accessible and provides employees with the necessary facilities and local amenities.
Try to imagine your business in the space, if you have ambitions to grow then it’s worth investing in a place people will want to come to work every day.
As a business owner, you’ll probably have a clear idea of where you want to take your company over the next few years. The majority of lease agreements will mean you’ll need to stay in situ for a few years, so make sure you have the space to expand. If you want the option to exit an agreement early, include the right break clauses that give both sides the right to serve notice without facing a penalty.
As with residential property, make sure you review the overall condition of the property with a proper survey. Look out for any leaks or other structural issues. Efficiency should also be a key factor, so remember to look at the Energy Performance Certificate (EPC) provided by the building’s landlord.
Reviewing your finances
Although rent is likely to be your biggest outlay, there are a number of other charges to bear in mind before starting your search, so remember to budget for the services of an agent, surveyor, legal advisor, fit-out supplier and removal team.
You’ll also need to factor in business rates, which are usually charged on non-domestic properties. In England, these costs usually add around 40% to renting an office and are based on the rateable value (open market rate) and uniform business rate (UBR). The government provides more information on their website.
Finding an agent
At Stirling Ackroyd, we deal with countless commercial property rentals within our local areas. Our expert knowledge means we can undertake the legwork and provide prospective tenants with a shortlist of property options from the outset. We understand the growth areas where your business can thrive.
We’ll also negotiate the terms of the lease between landlord and tenant so both parties can enter into the agreement feeling secure and happy.
The legal process
If you’re renting commercial property, the trickiest process is likely to be the legal negotiation of your lease agreement. During rental negotiations, you can amend or challenge any aspect of the lease, so make sure your lawyer and estate agent are both properly briefed. With commercial property, the tenant will be responsible for most outgoings, including the supply of utilities.
Although lease lengths vary (the average is around four years) the length of a new commercial property lease has decreased in recent years and some landlords will offer shorter agreements. If you’re looking to rent a larger commercial unit then it’s usually possible to agree on a longer lease. The Royal Institution of Chartered Surveyors (RICS) recommends looking at service charges, rent reviews, subletting space, assigning the lease, repairing and decorating obligations and personal guarantees.
After you have agreed your lease, your lawyer can begin drawing up Heads of Terms. These usually list the important points, including the type of transaction, rental value payment method, a description of the transaction and timescales to completion.
Signing on the dotted line
Once you are content with the contract, both parties can sign it. In England, the lease agreement is legally binding once contracts are exchanged.
After completion, you can set up shop in your new commercial property!
If you’re in the market for a new commercial property, or would like to find out more about areas of growth, contact your local Stirling Ackroyd branch to speak to one of our experts.