The pros and cons of renting offices or purchasing them in Mansfield

calculating the cost of renting offices mansfield

The popularity of renting rather than buying commercial property increased in the decade between 2006 and 2016, according to the Property Industry Alliance’s Property Data Report 2017. In 2016, rented premises accounted for 55% of all commercial property by value, up from 49% in 2006.*

Although it may be tempting to think that the money spent on rent is wasted, there are many advantages of renting your own office. However, for some businesses, buying their own offices may be the best way forward.

Here is a round-up of the main pros and cons of renting offices or purchasing them.

Upfront costs

Before renting a serviced office, you’ll need to pay:

  • One month’s rent in advance
  • A security deposit.

It may also be necessary to rent or purchase office furniture and equipment before moving into your new office.

If you decide to buy an office, the upfront costs will include:

  • A deposit, which is usually at least 25% of the purchase price
  • Legal fees
  • Surveyors’ fees
  • Mortgage fees
  • Stamp Duty Land Tax (if the value of the building is above £150,000)
  • VAT, which you may be able to reclaim if your business is VAT registered.

You may also need to pay for alterations or improvements to the office before your business can move in.

Business Rates

Business rates are payable on almost all commercial properties. However, business rates are often included in the rent on a serviced office.

Most businesses renting non-serviced offices are responsible for paying the business rates themselves, while all businesses buying their own offices have to pay business rates.

Find out how much the business rates would be before committing yourself to a commercial lease or a mortgage on a commercial building. Would your business be able to afford this extra cost in addition to its other monthly expenses?

Property Maintenance

If you rent a serviced office, you don’t need to worry about maintaining your office building at all. Repairs will be arranged and paid for by the owner of the building. This means that you can concentrate on running and growing your business without having to spend time and money on property maintenance.

If you lease a non-serviced office, you may be responsible for some building maintenance, such as repairs to the interior of your office. Check your draft lease to find out exactly what you’d need to take care of.

If you purchase your own offices, you’ll be entirely responsible for the on-going maintenance of the interior and the exterior of the building. This means you can make all the changes to the building that you want and that suit your business.

However, it can also mean that you spend a lot of time and money organizing and supervising improvements, repairs and alterations. You may also need to make changes to the building in order to comply with health and safety regulations. 

Running costs

On average, small businesses in the UK pay £2,958 per year for electricity. This rises to £5,013 for medium-sized businesses.**

However, electricity and the following running costs are usually included in the rent on a serviced office:

  • Heating
  • Lighting
  • Water
  • Cleaning.

When leasing a non-serviced office, you’re likely to be responsible for the costs of all these services within your office. You may also have to a pay a service charge for areas of the building that are shared with other businesses.

If you purchase your own office, you’ll be solely responsible for all the running costs in the building, so an estimate of each of these needs to be taken into account when planning your budget and forecasting your cash flow.

Ask to see the building’s Energy Performance Certificate (EPC). This will tell you how energy efficient the building is and give you a good idea of how high the heating costs will be.

Insurance

Buildings insurance is usually taken out by the landlord of serviced office buildings and you therefore only need to insure the contents of your own office. This may also be the case when renting a non-serviced office under a commercial lease. It’s wise to check the exact terms of your contract, because you may be required to pay a percentage of the buildings insurance premium.

If you purchase your own office, you’ll need to insure both the building and its contents, which may prove to be quite costly, especially if the building is relatively old or if it’s in a high-risk area for flooding or vandalism.

Flexibility

Renting a serviced office gives your business the maximum flexibility possible. If your business begins to expand rapidly and you need to take a on a lot more staff, you can move to larger premises by giving just one month’s notice.

If you lease a non-serviced office, your notice period is likely to be longer – perhaps 3 or 6 months – or there may be a break clause in your contract that allows you to end the lease early under certain circumstances. This gives you a reasonable amount of flexibility should your business need to move offices unexpectedly.

If you buy an office, it’s likely to take much longer to sell the office and buy another one. It may be a year or more before you find a suitable buyer and finalise the sale. This may have an adverse impact upon your business, especially if the reason for the move is the need to downsize.

Your business’s stage of development

Investing some of your business’s start-up capital in the purchase of an office may seem like a worthwhile long-term investment.

However, in the early stages of developing your business, you’ll need to invest in a lot of other things, such as equipment, IT systems and employing new members of staff. Buying a commercial property is a large financial commitment and it will take resources away from areas that are essential for the successful development of your business.

If you’d like your start-up business to be in a prime location, renting an office will be a lot less expensive than buying.

On the other hand, if you own a well-established business that has grown consistently over many years and is financially stable, it may be a good time to purchase your own offices.

If your business can easily fund the deposit on a commercial property without the money being needed elsewhere, then it may be a good time to take the plunge and invest.

Consider whether your business is in a good position to commit itself to paying the mortgage each month for its full term. Also consider whether you’re ready to take on all the responsibilities and on-going costs of property ownership. Discuss your plans with your accountant, solicitor and other advisors.

Like buying or renting a home, there are many factors to take into account before deciding whether to rent or buy offices. For some businesses, the solution will be clear-cut. For others, it will be more difficult to determine whether renting or buying offices is the best way forward.

References

* https://www.bpf.org.uk/sites/default/files/resources/PIA-Property-Data-Report-2017.PDF

** https://www.businessenergy.com/electricity/

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