Renting your commercial property rather than owning it brings several benefits, mainly in terms of cash flow, flexibility, tax, choice of locations and more.
In this article, we’ll cover the five main advantages of leasing the property you do your commercial activities from, so you’ll be better informed when you’re taking your business to the next level.
5 benefits of renting a commercial property
When you need a property to run your business from, you’ve really got three options: buy it outright, use a property you already own or have access to (which usually means your home if you’re a small operation), or enter a rental or lease agreement.
All three come with pros and cons, but for most firms, the benefits of renting far outweigh property ownership, which is why in the UK at least, leasing commercial property is perfectly normal practice. Let’s look at the advantages one by one.
1. Better cash flow and liquidity
When you buy your business property, whether you pay outright or with a commercial mortgage, that cash is tied up in the property.
Sure, the property becomes an asset, which you can borrow against, but it’s ultimately a sink for cash, which could have been used for investing in growth. And don’t forget, you could be paying double the price, once interest is taken into account.
2. Flexibility and scalability
If you’re a growing business, it’s handy to be able to quickly move into bigger premises or take on extra space in different locations. It’s typically quicker to arrange a new lease than selling and purchasing property, which means you can realise your plans in line with your growth.
Similarly, if you decide to downsize, instead of being stuck with a half-empty property, you can simply move into somewhere smaller.
3. Tax implications
Your rent is generally treated as a business expense, so you will typically pay less tax when leasing rather than owning. Being the owner of your business property can be a lot more complicated when it comes to taxation.
4. Wider choice of locations
Investors tend to buy business properties in high value locations, whether that means busy town centres for retail, great transport hubs for logistics companies seeking industrial space or specialised business districts for office buildings.
Because you’re not waiting for existing occupants to sell, you usually have many more options for locations.
5. Maintenance responsibility
Most lease agreements, particularly full repairing and insuring (FRI) leases, place the responsibility for maintenance, repairs and upkeep on the tenant. This means tenants are usually required to look after the property and cover the cost of works throughout the lease term.
However, not all leases follow this model. Some agreements, especially shorter or serviced arrangements, include repairs, maintenance, cleaning and services within the rent. In those cases, tenants benefit from predictable costs and fewer unexpected expenses.
As always, it’s essential to review the details of your lease so you’re clear on where responsibilities lie.
What should you look for when renting your first commercial property?
Not all commercial properties are equal, and you owe it to your business to ensure you get the one with the best value. That doesn’t necessarily mean the cheapest wins. A retail property in the middle of nowhere might be cheap, but may not have the footfall required to contribute to it’s success.
The landlord will be able to provide you with certain statistics about the property and its surroundings, but a diligent business owner will also do their own research. You should also research parking, public transport, and how close you are to customers, suppliers and partners.
Permitted use is an important factor, as some properties are only allowed to be used for certain purposes, such as retail or hospitality, and others might forbid you from engaging in business that makes a lot of noise or stays open late, for example.
Although many landlords offer flexible leases, there will usually be a minimum term, which you will need to be committed to. Ending the lease early could incur fees, or you could end up paying for a property you’re not using.
Look into break clauses for peace of mind. This is where you’re allowed to leave the lease once a certain amount of time has passed, typically a few years, even though there is still time left on the contract. Start-ups are particularly vulnerable to collapse or having to downsize, so a good break clause could save you in the long run.
The rent you’re paying at the start will usually come under review from time to time. It protects the landlord from inflation or the location becoming more desirable. Make sure you know how the owner plans to review your rent, and what (if any) restrictions or limits they impose within the contract.
Another important part of the contract is the service and maintenance clause. As we mentioned above, you might be responsible for any amount of work, from simple cleaning all the way to structural repairs. It’s vital that you don’t overlook this part of the contract.
Finally, if all goes well, can you grow? The owner might be able to provide extra space, or facilitate a move to a larger property without incurring fees for ending the contract early. Again, it’s something to bear in mind when you first sign on the dotted line.
Knowing the right type of property for your exact requirements
It can be tricky working out what type of property you need, because you can’t see the future and business can be quite chaotic.
But if you can find a property that satisfies your basic needs, you should be able to make it work. Towns and cities always have quarters where certain sectors of business congregate. That makes it easier for customers to find businesses, and attracts ancillary businesses to the area. If you have a specialism, it’s often worth looking to locate among similar businesses, as long as demand isn’t saturated.
The chances are, if you’re looking for property, you’ve outgrown your current place of work. That should give you a clue as to how large a space you need. The rate at which you have grown, and how much you anticipate growing in the medium term, will also affect the size.
Not all growth requires extra personnel or storage space, but growth can result in staff and potential recruits having higher expectations of the workplace and its surrounding area. If you’re in a buzzing area, with great transport links and nearby housing and good schools, you might find you can attract better qualified candidates.
Conclusion
As we’ve seen, there are plenty of benefits to renting your business property rather than buying it or working from home.
The vast majority of UK businesses choose the leasing model for its flexibility, cost-effectiveness and reduced risk, and it’s partly why many towns and cities are dynamic and thriving – it lets businesses take a punt, and have more money to invest in themselves.
It’s important to make sure you’re dealing with a property owner or manager who understands your business needs and is as flexible as you need them to be. That’s what we pride ourselves on at Sorbon Estates.
The way we see it, if we can help our tenants to be successful and grow, it’s a win-win for both of us. It’s why we have relationships going back years over multiple properties. If you’re looking to take your next step in your business property journey in the South East, take a look out our properties and get in touch to arrange a viewing.