5 ways businesses can minimise the property costs.
Property costs can cripple an otherwise successful business. Company owners may strive for the Grade A office with their name on the front door, but if they can’t pay the rent at the end of the month then the outlook is bleak. So how do you choose the right space for your business?
Whether you’re unsure whether to lease or buy, or where to save costs, in this guide Conrad O’Neill will explain everything you need to know.
1. Manage Costs
The recession enabled occupiers to get the shiny offices at reduced costs but as the market improves and rents increase, some occupiers are finding themselves in offices they can no longer afford and will have to move again to reduce costs, which is an expense in itself.
Capped Service Charges
Capped service charges are one way of managing costs. Again, in an improving market and where costs for servicing buildings are increasing, landlords will be more reluctant to agree to this but where the service charge is high, they will have little choice. A cap is not there to subsidise occupiers but does encourage the landlord to run the building more efficiently.
Dilapidations is an interesting area. Some of our landlord clients are prepared to waive dilaps at lease expiry in return for the tenant paying a higher rent. As the tenant has no nasty dilaps cost at lease expiry, the landlord can put the money away to cover any refurbishment costs and can get on with the works as soon as the lease ends and the tenant vacates – without any prolonged argument over dilaps settlement. The difficulty from the landlord’s side is getting the additional rent figure right so the landlord is not left with a shortfall when it comes to do the works.
Capital allowances are a great way of reducing occupational costs for owner-occupiers. Many occupiers don’t even realise they could qualify.
Review of business rates is always advisable. Some assessments may be high and can be appealed against. This is particularly relevant as we approach a re-valuation.
2. Be Smart With Your Space
Cost-conscious occupiers are squeezing more staff into space these days. This used to be the case only with high-density call centres but more and more occupiers are adopting this now – even the professionals. Hot-desking is still in use but can only really apply to a small percentage of the total staff in most cases. Those buildings designed and built to properly accommodate high-density occupation offer genuine cost savings, such as Metro, Salford Quays, which can accommodate occupation at 1:6 sq m.
3. Freehold vs. Leasehold
Freehold owner-occupation is very cost effective, as the occupier gets to control costs and is protected from high rent rises and poorly managed service charges, but this option tends to work better for smaller, long-established firms. Larger office occupiers need greater flexibility and don’t want capital tied up in property. SIPP purchase, which we ourselves have done at 6 Hewitt Street, is very tax-efficient.
4. Sub-Let Your Space
With flexible leases now prevalent, sub-letting is less common as tenants can exit by serving break notices, however on longer leases or larger space, the ability to sub-let space is important, but not all space lends itself to splitting and some leases prevent sub-letting of part or make it difficult. Care needs to be taken when first negotiating lease terms to make sure that it is “future-proofed” as regards to the ongoing and evolving needs of the tenant.
5. Devil is in the Detail
Energy costs are rising. Most landlord will exclude utilities from service charge caps as they are not in the business of subsidising tenants in this regard – and most tenants will accept this. Larger landlords can exploit bulk buying power to purchase energy at discounted prices and can then pass this on to their tenants via service charge, so it’s not always the case that a multi-let building will be more expensive to run than a smaller self-contained building.
A Final Word
Tenants need to make sure they can do as much as possible under the terms of the lease without having to get landlord’s consent – which can be costly in terms of legal and managing agents’ fees.
Are you looking to relocate but are concerned about spiraling costs, or perhaps you’re looking to minimise costs but don’t know where to start? Whatever your thoughts get in touch and if you’re looking for professional advice on whether to move then get in touch with us at Canning O’Neill – don’t forget to follow us on Twitter too!