You also need to take into account how the decision to license, lease or buy your premises affects your costs and the flexibility you’ll have if your premises requirements change in the future.
Which area do you want to be in?
- Where are your customers? If your customers are based in a particular geographical area, it makes sense to locate your business where they can easily find and visit you. This is essential for retail businesses.
- Where are your competitors? Do you want to be close to a cluster of competitors that attracts customers, or to have exclusivity in an area?
- Do you want to be close to particular suppliers? Could this give you flexibility on stock control or reduce your transport costs?
- How important is the location? Can you operate remotely, or from home?
How expensive is the area?
- New towns and developments are often cheaper, but may not be suitable. See Town centre or out-of-town?
- Prices are lower in areas with vacant property, but that may indicate that the area is not good for business.
- Setting up in certain locations may qualify you for grants or other financial incentives.
Must you be near transport links?
- Can customers, suppliers and employees reach the premises easily?
- Do you need to be close to motorway links, train stations or other public transport?
How will the location affect employees?
- Will you be able to recruit suitably skilled people locally?
- Will the location meet employees’ needs for housing, schools, shopping and lunch?
What local facilities do you need?
- Do you need to be near a bank, post office or local parking?
How will the area affect your image?
- What impression will visitors form? Does your postal address matter?
2. Town centre or out-of-town?
Town centres offer several advantages
- You can increase your visibility to potential customers.
- A good address may be important for your image.
- You will probably have good access to public transport.
- You will be close to facilities such as a post office, banks and print shops.
- Employees may be attracted by a choice of eating, shopping and leisure facilities.
- Businesses which usually prefer town centre locations include retailers, employment agencies and professional firms.
A town centre location may not suit you
- Prime locations tend to be expensive.
- Car parking may be difficult and expensive, for both employees and visitors.
- Access for deliveries may be restricted.
- Noise and pollution may be worse.
- Office space may be older and lacking modern facilities.
Many new office developments have been built away from towns
- There is usually plentiful parking. Some employees place a high premium on being able to drive to work.
- Business parks generally have modern, well-equipped office space.
- A newly built development should be clean, attractive and safe.
- Businesses which often prefer out-of-town offices include sales operations, manufacturing businesses and call centres.
Out-of-town business parks also have disadvantages
- Estate maintenance and management charges in a business park can be surprisingly high.
- Some business parks are located in run-down former industrial areas. Your employees and customers may find this off-putting.
- Employees without cars may find getting to work difficult.
- There may be few shops or places to eat nearby. With fewer places to socialise locally, employees may not spend much time together outside working hours.
3. Your premises requirements
Draw up a ‘property spec’, including all the details of what you are looking for. Note which aspects of the spec are essential, and which are just desirable. A good spec will stop you wasting time looking at premises which are non-starters.
Decide where you want to be
- How important is location? How flexible can you be?
Decide on your total space requirements
- Work out how much space each person needs.
- Take into account any space that could be saved through hot-desking or flexible working. For example, if employees are not all in the office at the same time or sometimes work from home.
- Decide what additional space will be needed for equipment, meetings, storage and socialising.
Think about layout
- Regular rectangular floors with a minimum number of pillars provide the maximum amount of usable space.
- Open-plan space is more flexible, since you can divide or reorganise the space as your needs change.
- Individual rooms offer privacy and are quieter.
Identify your access requirements
- You may need access for employees, customers and deliveries outside working hours.
- Do you need to be on the ground floor?
- How many entrances (how wide and how high?) do you need?
List the services you need
- For example, power, phone lines, good broadband, plumbing and drainage. How many power points and phone sockets will you need? Can these be increased in future?
- Modern buildings may offer air conditioning, cabling ducts and good security built in.
- Does the work you do call for particular facilities (eg gas or three-phase power)?
- Do you have plant or processes that need special ventilation or air conditioning?
- Do you have special requirements for waste disposal and drainage?
Be clear about structural requirements
- An older building may look nice, but will the wiring and plumbing be adequate?
- Will expansion or layout changes be possible?
- Must your premises have special physical attributes (eg overhead clearance, upper-floor loading or reinforced foundations)?
Think about appearance and comfort
- How important are these for visitors and for employees? Where image really matters, the big serviced-office companies offer immediate access to smart, fully-equipped, flexible offices. Many also provide support services on demand.
- What are your requirements for light (natural and electric) and heat? Dark offices lead to more sickness and low productivity, so money saved by renting an office with poor light may be a false economy.
- What facilities (eg WCs, a kitchen) will employees and visitors need?
Consider legal issues
- What type of business are you (eg a shop, an office or a factory)? It will be easier if the property already has planning permission for your ‘use class’.
- Will you need any new planning permission - for example, to put up business signage?
- Is your business covered by additional regulations or do you need any licences? For example, if your business processes waste or handles food.
Think about future flexibility
- Many businesses underestimate how quickly they will outgrow their premises.
- Going into a serviced office block may allow you to shift from one office to another while keeping the same address. This reduces relocation costs and the disruption of moving.
- If you initially sublet part of your office, you have the potential to expand in due course.
Decide the type of ‘tenure’ you require
- Will you licence, lease or buy?
- If you need leased premises, how long a lease would you prefer?
Set your maximum price
- Take into account VAT and any annual charges.
4. License, lease or buy?
When you occupy premises, there are three kinds of property contract you can sign.
A licence gives you maximum flexibility, but minimum security
- Licensing typically suits smaller businesses and start-ups.
- With minimal legal fees (if any) and only a small deposit to pay, taking premises on a licence is usually the cheapest option in the short term. Typically you need a month’s rent as a deposit and will pay rent monthly, or quarterly, in advance.
- Local authorities and enterprise agencies often subsidise rents in licensed office space to encourage small businesses and start-ups.
- Licences usually cover a short period of time - up to two years.
- You, or your landlord, can usually terminate the arrangement at short notice. But the landlord is unlikely to move you out if you are a good tenant.
- Licensed premises often give you access to shared office facilities and services, such as a manned reception and meeting rooms.
- Licensed space will generally be maintained and repaired by the landlord.
- The availability of licensed premises is mainly limited to offices, studios and workshops suitable for smaller businesses. There is usually little scope to alter premises to suit your particular needs.
- Neighbouring licencees can cause problems. For example, if their businesses cause noise or smells.
A lease gives you less flexibility, but more security
- Most established businesses lease their premises.
- Leasing gives you security of tenure for the term of the lease, which is generally between three and 25 years.
- Most leases include rent reviews at fixed periods. In a rising market, your rent may increase considerably. If rents fall, you may be stuck paying above market rates for several years.
- You may be liable for the rent for the whole period of the lease, even if you vacate the premises early. But you may be able to negotiate a break clause that gives you the option to end the lease early (eg at five-year intervals).
- The landlord is usually responsible for external repairs and maintenance, and for any common areas. You may be responsible for internal repair and maintenance work.
- You can usually make alterations (with the landlord’s consent). But at the end of the lease, you may be liable for putting right any alterations you have made.
- A lease (or a licence) may include various restrictions on how you can use the premises, whether you can sublet part of the premises, and so on.
- A wide range of business premises can be leased.
You can buy the premises outright and acquire the freehold
- Few businesses buy premises unless they have large amounts of spare cash and are looking for a long-term investment.
- You can stay in the premises as long as you want. In theory, you can move out when you want, but this will be subject to market conditions and your ability to find a buyer.
- You can alter and improve the premises as much as you like, to suit the needs of your business (subject to planning permission and building regulations).
- If you no longer need the premises for your business, but cannot sell the property, you have the option to become a landlord and lease or license space to other businesses.
- Buying ties up your money for a long time. Deposits for commercial property mortgages are typically around 30%.
5. Searching for business premises
If you are looking for leasehold or freehold premises, the search process can be complicated and time-consuming.
Use your property specification as a starting point
- It will give you clarity in your search and help you to cut down on the number of unsuitable properties you see.
Make the most of personal contacts
- You may be able to share or sublet premises if they are based in the area you are interested in.
- You may hear of suitable premises that have not yet come onto the market.
Check with your local authority and business support organisations
- Your local authority’s economic development department may have a property register or run a subsidised business centre.
- Contact your local enterprise agency, Local Enterprise Partnership or chamber of commerce.
Look in relevant publications and websites
- For example, the local and national press and specialist property publications and websites.
- Local newspapers and Daltonsbusiness.com carry many advertisements for small business premises that do not appear elsewhere.
Visit commercial agents who are active in your target area
- Question them about the state of the market and any new developments.
- Give them a copy of your property specification.
- Ask for printed specifications of different premises to be sent to you. These will include an Energy Performance Certificate (EPC) giving information on the energy efficiency of a building and likely energy costs.
- Select the most suitable properties and discuss them on the phone. Annual cost per square foot (including rent, rates and service charges) is a useful basis for comparison.
- The landlord or seller generally pays agents’ fees, unless otherwise agreed.
- Do not be hurried by agents who keep mentioning other interested buyers.
Consider hiring a chartered surveyor to search for you
- They will know the market and what is available.
- They are experienced in negotiating the price and terms of a contract, taking commercial factors into account.
- They will protect your best interests, unlike commercial agents, who work for the landlord or seller.
- A surveyor can view several premises before recommending a shortlist. If you are already busy with a growing business, this can reduce the extra workload for you.
Fully involve your professional advisers before committing to any legal agreement
- Depending on the circumstances, there may be a need for a structural survey, legal due diligence, and much more.