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A small business guide to buying office space

POSTED: 7th July 2014
IN: Guides
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There are a lot of things to take into account when you’re running your own business. From turnover, to marketing, and staff satisfaction, - the list is endless.

But one of the most important decisions that you will have to make is whether to rent or buy office space.

When looking for the perfect home for your business, there are many factors that need to be taken into consideration. If you’ve already been up and running for a while, the process will probably be that little bit easier as you will have money to invest. If you’re working on a start-up, you’ll have a smaller budget but will need to plan ahead to allow for growth. There is no point in moving into a very small office space if in a year’s time you need more room for your growing team.

You’ll also need to consider how convenient the location is for your employees. Is it easy for them to get to? Are there any train or bus stations nearby? Are there adequate parking facilities?

Renting

Office rental is extremely popular and as a result, the market is large. While conditions vary depending on whereabouts in the UK you are, there are certain pros and cons to renting that are easy to identify.

Renting an office can be beneficial financially in the short term. You won’t need to invest as much money into the property as you would if you were buying it. Landlords will require you to provide a security deposit, but this will not be as expensive as it would be if you were buying the property.

Renting an office space is also a flexible option. It can prove valuable if you aren’t sure how much your business will grow in the next year or so. Renting can also be helpful if there is a chance that the office’s surroundings may change in the near future. For example, changes to local transport options or amenities may make the location less desirable in the long term, allowing you to easily move if necessary.

While renting can prove cheaper, there is a risk that the rent might increase over time. To minimise the impact that rental fluctuations could have on your finances, factor potential price surges into your budget.

There are two types of lease available for rented offices.

Conventional leases give you an empty office space which you will need to fill with office furniture, an internet connection and other facilities yourself. This means that you won’t be able to move into the property immediately and you may have to spend a considerable amount of time preparing it. You’ll also need to factor in insurance and maintenance fees, which could pile up over time. Leases usually require you to commit to the property for at least 5 years.

Flexible leases are, as their name suggests, much more versatile. You can rent an office space for just one month if you wish. This type of lease also means that the property comes equipped with desks, computers, photocopiers and usually internet and phone lines. However, the downside is that this type of lease can prove costly in the long term.

Buying

Buying office space is a big commitment and one that you may be unable to afford if your business is very new or small.

However, while you are somewhat tied to the property, it also allows you a strong element of freedom and the ability to modify, redesign or decorate the office space as you wish. Now that the place is yours, there are few or no restrictions.

If the property gains value, you’ll make a profit and you may be able to let part of the property to make mortgage repayments less of a burden.

If you do find that you need to move your business after a particular period of time, you can let the property to someone else, giving you an added income.

Buying an office is similar to buying a home as you will require a mortgage and you’ll need to do your research just the same. You may want to ask the following questions before you select a mortgage:

  • How much can I borrow?
  • Can I make overpayments?
  • What will the term be of the mortgage?

Lending rates vary depending on the lender, but; Aldermore will lend from £25,001 to £1m, but the amount that can be borrowed is assessed on an individual basis and will differ from business to business.

It’s worth doing some research beforehand to see if you can make overpayments in more successful months. Some banks will allow you to pay a percentage of the outstanding balance without incurring early repayment charges.

If you choose a fixed mortgage rate it will be easier to predict how much you will be paying each month.

There are certain downsides to buying. Making alterations to the property can take up a considerable amount of time and will increase the amount of responsibility that you have for the place. If the property decreases in value, your business capital could be impacted.

You will need to provide information about your current financial status before a lender will make a commitment. They will need to be sure that you will be able to make the payments as agreed. You will most likely need a clear credit history in order to borrow and should be able to demonstrate a strong track record.

To secure a commercial mortgage with a bank, you’ll need to meet certain lending criteria, which usually includes the following:

  • Two months’ bank statements
  • A statement of assets and liabilities
  • Cash-flow projections and business plans (depending on your lender)

Choosing the right property

Commercial property for businesses comes in all shapes and sizes and whether you rent or buy, you will need to spend time finding the perfect one to suit your needs.

Make sure you contemplate the following before making a decision.

  • Space.Spend time planning out how much room your employees will need. Are there any boardrooms? Does it have a kitchen/break room or space to create one? Are there enough toilets? Do you need space for any other facilities?
  • Transport. Does the office have convenient parking facilities? Is it near public transport options?
  • Comfort.Is the building comfortable and away from noise or anything that may cause a nuisance and impact on your team’s productivity?
  • Health and Safety.Does the building abide by health and safety requirements or are there any risks involved?
  • Making it your own.Every work environment is different and the best are tailored to suit the company. How easy will it be to create the working space that you need?

To find out more about commercial mortgages, please don’t hesitate to get in touch with our expert advisors, who can assess your situation and offer you information tailored to your business. 

The content published on this website is intended to provide information only. The reader should seek advice from experts on the subject matter and independently verify the accuracy and relevance of any information provided here before relying upon it or using it for any reason. You can view our terms and conditions here.

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