Company owners may strive for the Grade A office with their name on the front door, but if the occupational costs spiral out of control, the outlook can be bleak.
So how do you avoid this?
Here are the key factors that business owners need to be aware of, and how you can keep costs under control.
(1) Choose the right space for your business
Occupiers should think long and hard about the type of space the business needs. There is no point taking expensive Grade A space if the business does not need this.
Think about how the space is going to be used. Will it be customer-facing? Is it a factor in attracting the right quality of staff? What about location? If you don’t need to be in the city centre, don’t go there as rents, service charges and business rates all tend to be higher there. Take professional advice on the pro’s and con’s and occupational costs of different locations.
Also ensure you choose the right amount of space. Don’t take more space than you need, unless you are certain you will expand into it. As a safety net, see if the space is sub-divisible, just in case you need to sub-let part of it. Make sure the ability to sub-let part is written into the lease at the outset.
Conversely, don’t take too little space. Outgrowing space well before lease expiry can prove very costly – either in terms of the business’ ability to properly function or having to relocate and the crippling cost of holding space that is no longer utilised. Involve a surveyor/space planner to advise you on space needs and to see how individual properties work for you.
(2) Manage costs
The recession enabled occupiers to get shiny offices at reduced costs but as the market improves and rents increase, some occupiers may find themselves in offices they can no longer afford and may have to move again to reduce costs, which is invariably expensive.
Capped service charges: In an improving market and where costs for servicing buildings are increasing, landlords will be more reluctant to agree to cap service charges but where the service charge is high, they will have little choice. A cap is not there to subsidise occupational costs. It is more a protection against but does encourage the landlord to run the building more efficiently.
Dilapidations: Some of our landlord clients are prepared to waive dilapidations at lease expiry in return for the tenant paying a higher rent. This avoids a potentially nasty large sum to pay out at lease expiry, instead, spreading the cost over the term of the lease. 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 the dilapidations 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: Many occupiers don’t even realise they could qualify for capital allowances, but taking specialist advice in this regard could potentially lead to significant savings. It is surprising what parts of office space qualify.
Business rates: A 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. Always check the rateable value and rates payable for the property you are considering taking a lease on. Don’t rely on the figure quoted by the letting agent. Business rates rise every year by at least inflation and the quoted figure may well be out of date.
Continue reading to learn how you can become smarter with your space…
Share this story