If you’re looking to rent a commercial office and are interested in learning more about the process, then you’ve come to the right place. Over the course of this post we will outline all that you need to know about renting a commercial office space.
Whether you’re a new start up looking for your first office, or an established business looking to expand into a new region, Commercial People’s handy guide has you covered.
Location is Key
One of the first and most important things to consider when looking for commercial office space for rent is the location.
The region, city and sometimes even the area of a particular city can sometimes immediately dictate what impressions clients, employees and customers-alike will form of your business.
For instance, while London is seen as the essential destination for all major businesses who wish to operate in the UK, different parts of the capital are often more suited to certain types of businesses, e.g. finance in the City of London and tech firms in East London’s Tech City.
While it is completely OK to break from the norms and consider renting an office that isn’t surrounded by your peers, you should still ensure that the office you do choose is an accurate representation of your company and its ambitions.
Of course, depending on the nature of your business and what you hope to achieve, having an office in London might not be suitable for your company. As such, it’s imperative that you choose a location that above all, works for you.
For example, if you’re a recruitment firm specialising in car manufacturing jobs, it would make little sense to have a recruitment office in the City of London, when the majority of the UK’s manufacturing plants are situated in other parts of the country. Equally, if you’re a mortgage broker with clients mainly in Birmingham and the West Midlands, having a plush and expensive office in the capital is a needless expense.
Beyond first impressions and perhaps avoiding high rents in city centre locations, one of the other important aspects you need to consider when choosing a location is accessibility and the availability of local transportation.
Depending on the nature of your business, you might not be dealing with customers on a face-to-face setting, as such, having an office that is well-connected to the local transport system might be of lesser importance to you, especially if you are a smaller business with fewer employees to consider.
However, in the event that you regularly are doing business in person with clients/customers, or have a large number of employees, it’s extremely important to consider the transportation options available as well as the nearby parking arrangements for your staff/visitors. Failing to consider these vital aspects when looking to rent commercial office space could prove to be costly and potentially damaging to your business in the long run.
In regards to accessibility, it is generally a good idea to consider renting an office space that doesn’t alienate employees (or future employees) with disabilities. One of the ways of ensuring accessibility for your office is to have elevator access to your floor as well as a wheelchair ramp installed at the entrance of the building.
If you are a public-facing business accessibility should be considered essential when looking for commercial office space.
While we aren’t here to tell you how to run your business, it’s a no-brainer that employee satisfaction can have direct consequences on your clients and customers. Staff that are expected to face complex and costly journeys into work (perhaps due to a lack of realistic transport options) are less likely to be motivated to do their best and present your business in a good light. In addition to this, clients or customers could be potentially put-off or reluctant to come into your office if your company is located in a fairly remote location that lacks sufficient local transport options.
Along with transportation, when considering your employees needs, it’s important to note the availability of local amenities and shops in the area too. As a decision maker in your company, it would be prudent to choose a location that is both convenient from a transport perspective as well as providing employees with sufficient options when it comes to eating lunch or entertaining clients.
What Does the Space Offer?
As touched on above, a commercial office space is much more than just the location, it is also about the people within the office as well as the facilities available to them.
When considering renting a commercial office space in the UK you should firstly consider the purpose of your office space. What this means is that you need to understand the reason(s) why you need this particular space, and what purpose will the office serve.
Some of the questions you need to ask yourself include: “Is this office space going to be a place where I meet important clients?” and “What members of my staff will use this space and why?”
Once you have answered the above questions you’ll now know the purpose of the office and be more qualified to pick and choose the features and facilities that must be included to make the office space viable.
For instance, if the office is going to be a place primarily for meeting clients/customers and doing business around these meetings, then it would be a good idea to ensure that the office (especially if it is a serviced office) is to a high standard and includes Grade A features such as 24/7 security, concierge/receptionists and best-in-class facilities, that will help to ensure you make a lasting impression on your guests.
Alternatively, if you’re a company that is trying to stand out from the competition and looking to attract new employees, then having a higher-end office could be highly beneficial as well.
Research has shown that employees are increasingly preferring to have more unique and creative workspaces, so offering employees the chance to work in a high-specification office that features showers and onsite gym facilities, entertainment options or even an outdoor garden, is a sure-fire way to boosting employee morale and job satisfaction.
On the other side of the divide, if your main area of business is either predominantly online (or indeed an online-only) business, then you could potentially save money by renting a cheaper and less visually appealing office space – instead focusing on employee bonding activities and ensuring you have fast and reliable internet access.
Once you have decided on the location and what you want from the office space, it’s now time to consider the cost of the office space that you’re seeking.
In the following sections we will cover the cost of rent, highlight business rates, Stamp Duty and other miscellaneous fees that add to the overall cost.
The Price of Rent
The cost of rent can vary greatly depending on a number of factors, including the location and the facilities that the office space offers you.
Should budgeting not be a concern, and you wish to impress customers/clients as well as new employees, Grade A offices can make a great first impression.
Typically, Grade A offices are viewed as the best-in-class and offer a wide range of amenities, facilities and services that are rarely offered in other types of offices. However, as a result of their facilities and often their desirable location in the heart of the UK’s most sought-after cities, they carry a rather inflated price tag when compared to lesser high-spec offices.
If you’re not too bothered about being in the epicentre of your chosen city, the prices for offices are usually more affordable. However, as the demand for high-spec offices diminishes outside of the main business areas of the UK, the level of available stock also decreases. As such, many businesses that wish to escape the exuberant costs of central London (and the centre of other major UK cities) while retaining the benefits of a luxury office, choose to either build their own offices, or lease and renovate lower-grade offices to suit their needs.
In the event that the cost of leasing a Grade A office is beyond your means as a company, it recommended that you take a look at Grade B or perhaps a Grade C level office instead. To learn more about Grades A & B, please see here – Alternatively, you learn more about all three of the grades and what influences their classification below:
Traditionally, a ‘ Grade A’ office building was seen as the absolute pinnacle of quality and architecture. Often located in the City of London, Canary Wharf and other key central business districts across the UK, many Grade A buildings feature high-spec renovation and a sense of grandeur.
As mentioned above, Grade A commercial office space is the most expensive to come by, and as such, are arguably only worth considering if you’re a business that is driven by outward appearance and maintaining a certain level of elite decorum.
However, as noted by Savills, the classic idea of a Grade A office is changing. In recent history there has been a greater push to include more employee-focused designs and facilities throughout Grade A offices.
So whilst Grade A offices still are often well-located with good access and professionally managed, there is more emphasis on the interior, which now regularly feature breakout/recreation rooms, fitness options, onsite showers and more.
More often than not, a Grade B commercial office space will be not too dissimilar to that of a Grade A class space. However, unlike Grade A offices, Grade B buildings tend to either be slightly older or are situated outside of the more traditionally sought-after locations in major cities.
One of the major benefits of a Grade B commercial office space (compared to Grade A) is usually the availability of onsite and affordable parking.
Typically, Grade B properties are found in converted industrial estates or business parks outside of town, and as such, offer more realistic parking opportunities for employees who would otherwise be unable to drive to a Grade A office in a more affluent part of the city.
More so than parking however, the biggest benefit of a Grade B office is the price. Grade B offices tend to have a considerably lower rental asking price than their Grade A counterparts, and as such, are becoming increasingly popular with more cost-effective business owners.
The increased demand for Grade B offices has seen a number of Grade B-targeting developments open up in major cities across the UK. Many of these developments are specifically targeting businesses that wish to expand from a less desirable Grade C office, or perhaps be more economically efficient by renting a similarly designed Grade A-quality space for a fraction of the cost.
The final category is Grade C. As the term suggests, Grade C commercial office spaces are the lowest specification available and typically require new tenants to fit-out the office to suit their own specific needs.
Rent for Grade C buildings are usually very cheap when compared to the higher grades mentioned above. However, it’s important to note that Grade C buildings may often be fairly old and are usually located in the less desirable areas of a city/town.
Beyond their age and their typically less-than aesthetically pleasing presentation, the technology within these offices are usually, equally out-dated. Depending on the nature of your business, a Grade C office might not be suitable for your company’s needs, especially if its location makes getting high speed internet access a problem.
While Grade C offices are more affordable than Grades A or B, the appearance and lack of appeal to the office could make it hard to attract, motivate, and retain employees, as well as even having a potentially detrimental effect on your clients/customers.
Business rates are a property tax charged on all non domestic properties, including commercial office space.
Depending on your leasing agreement, business rates might be included as part of your rent, so in these circumstances, you don’t need to concern yourself too much with the price of your business rates.
However, should the rent not be inclusive of business rates then read on to find out why it’s important to learn how much you will need to pay and to see if you’re eligible for a tax relief.
As mentioned above, business rates are a tax charged on any buildings that are not used for domestic purposes. However, business rates can also apply to homes that are used to run a business. In many ways, business rates are similar to council tax except that they are targeted solely at businesses rather than individuals.
Business rates are calculated using the property’s ‘rateable value’, which refers to the property’s estimated value on the open market. As many businesses lease offices or commercial office space, the value of the property isn’t necessarily beneficial to the tenants; as such a lot landlords or office providers will include business rates when factoring in their rental costs. Inclusive business rate rental is typically used when attempting to attract smaller businesses to lease commercial office space that they would otherwise not be able to afford.
Business rates are payable either in one go or on a 10 – 12 monthly payment plan directly to your local council. Click here to work out how much you will need to pay.
Depending on the size of your business and the value of the property that you’re renting, you might be eligible for a discount on the amount of business rates you need to pay, this is known as a ‘small business rate relief’.
You may be eligible to receive a small business rate relief for any of the following criteria.
- The property you’re renting for your business has a rateable value of under £15,000. You may even be eligible to pay no business rates whatsoever if the property is valued at under £12,000.
- Your business only uses one property – If your business uses only one property you will not need to pay business rates. However, should your business have more than one property, you can still receive small business rates relief on your main property for 12 months after getting your second property. After the 12 month period has passed, you may still be able to claim small business rates relief as long as the following two conditions are met:
- None of your other properties have a rateable value above £2,899
- The total rateable value of all your properties is less than £20,000 (£28,000 in London)
- Even if you don’t pass the aforementioned criteria for rate relief, you may still be eligible if the property your business occupies has a rateable value below £51,000. In this instance your business rates bill will be calculated using the “small business multiplier”, which will result in a slightly reduced business rates bill.Click here to visit the GOV.UK website to learn more about business rate multipliers.
Stamp Duty Land Tax (SDLT) often referred to as just ‘Stamp Duty’ is a tax that is charged on all property types and transactions in the UK.
Working in a similar fashion to how SDLT is used in the residential sector, you will also have to pay this tax whether you’re buying an office or leasing commercial office space.
The cost of SDLT you pay depends on any lease premium paid by the tenant, and on the rent due under the terms of the lease. The type and length of lease that you’re agreeing to is factored in and the “Net Present Value” or NPV of the lease is then calculated in order to determine the amount of SDLT owed.
The NPV is derived from the amount of rent that is due for the first 5 years of the lease. In the event that a lease exceeds five-years, the NPV will be calculated using the highest amount paid over any 12-month period during those first 5 years.
Beyond Stamp Duty and rent you should also factor in any insurance policies that you wish to (or must) take out during your tenancy.
Commonly most businesses using a shared (or multiple company) office space will pay a proportion of the properties building insurance as part of their rent, however, it is important to clarify if this applies to you, before agreeing to any lease.
In addition to insurance you should also be aware that you might also have to pay for a service charge or management fee depending on the type of commercial office space you’re renting. Service/Management fees often are a way for commercial landlords to cover the costs of the management team that will typically be responsible for the day-to-day running of the office.
The final additional cost to consider is the cost of searches. Local councils and surveyors are responsible for carrying out a wide variety of checks and searches on the property to ensure that the office space you’re intending to lease is safe, and worth its asking price.
While this stage is perhaps less required on a serviced office due to the management firm being responsible for the general upkeep of the premises, it is still worth conducting a basic survey/report to look for any flaws that could hamper your leasing tenure.
Making an Offer
Once you have found a property that ticks all the boxes your business requires, including the location, facilities and asking price, you’re now ready to make a formal offer.
Offers for leased offices are usually submitted via your surveyor but depending on the type of office you’re leasing, you might do this through a marketing agency or serviced office provider.
In the case of serviced offices, typically, the asking price is usually the price that you will pay, and there may be little-to-no negotiation for a better deal. However, depending on the length of lease you are agreeing to, the space your business wishes to rent and the status of your company, you may be able to find some grounds for negotiation on the asking price.
Once you have made an offer, the landlord’s agent is required by law to forward your offer for the landlord’s consideration. If the landlord accepts your offer, you can then move onto exchanging contracts and beginning your occupancy. However, in the event that your offer is declined, you can try to negotiate further to find an agreed rent price that is suitable for both parties.
Please note that while you may be in advanced talks with a commercial landlord, it’s a good practice to ask that you both sign a lockout agreement at this stage if you haven’t already done so.
For the uninitiated, a lockout agreement is when you and the landlord sign an agreement that forbids the landlord from leasing the property to anyone else within the agreed lockout period. While some landlords might be hesitant to sign such a restrictive agreement, they may be inclined to do so if your business has a proven track record of success or has offered a more favourable lease length than other interested parties.
The Exchange of Contracts
As briefly touched on in the above section, the exchange of contracts is the last part of the commercial property transaction process, and the final step before you’re able to move your business into the premises.
The exchange of contracts stage is when the premises will officially become yours. During this stage (and in the event that a lockout agreement is signed when making an offer), the only things left to do should be the settlement of any owed fees to the landlord or your surveyor/agent as well as the signing of the leasing agreement.