How to buy commercial premises
Moving into your own property is an exciting part of the growth of any business. It is a visible demonstration of your commercial worth to customers, suppliers and partners.
It can also help you to expand. However, it can be difficult to handle the various stages of acquiring commercial premises, from locating a site, to getting a commercial mortgage, to securing the premises.
Should you buy premises?
Think carefully about whether purchasing commercial premises is the logical next step for your business - take time to weigh up the pros and cons.
- You are free from worries about rental increases
- If the property increases in value, your business benefits from capital gains
- You may be able to fix monthly payments, to give yourself security over your outgoings
- Interest payments on commercial mortgages are tax deductible
- You may be able to sub let a portion of the property, to lessen your mortgage payments (so long as your lender agrees)
- Your mortgage repayments are likely to be similar to rental on a similar property
- You can re-mortgage to raise finance
- You gain operational flexibility, because you can design the premises to suit your business, or to rebuild and extend as your business expands
- You will need to provide a deposit of between 20 per cent and 30 per cent of the value of the property in advance
- You will have to finance the upkeep and maintenance of the property
- If the property loses value, it will impact on your business capital
- Depending on interest rate movements, your mortgage payments could increase
- You have less flexibility to cope with changes in circumstances - to take on more or less space, or to move to a different location - than if you are renting
- Buying premises ties up cash flow which could be invested in new employees, or plant
- You will make property ownership a central part of your business, exposing yourself to an unpredictable market. This could leave you with a large and unproductive asset, which still incurs costs
What kind of premises?
Depending on the kind of business you run, choose your premises to fit your specific criteria. Decide how much room you need per employee, and whether you need additional space for meetings or interviews. Do you need parking space for visitors or customers? Do you need extensive storage space? Consider taking more than one premises, with a less expensive location for archive records.
Consider modern buildings with good natural light and security systems built in.
Also consider that if you are, for example, a manufacturing company, you may need permission to conduct your business.
Location, location, locationLook for a location which best suits your business needs.
If you are a retailer, you may need to be close to your customers or suppliers, with good visibility.
If you use high tech communications, you could choose a more remote location, saving money.
If you produce goods, transport links may be a crucial factor.
Consider the commuting needs of your staff. Can your employees travel easily to your premises? You will have to pay more for premises in a city centre, but your choice of potential employees will be greater.
City centre locations often suffer from higher crime levels, more noise and pollution and higher parking charges. Out of town locations offer better parking options and are typically cleaner with modern buildings, but may have fewer amenities such as shops and restaurants nearby.
You can browse or search for a wide selection of commercial property for sale to suit your specific needs on PrimeLocation.
Refining your search
When tracking down the ideal commercial property for your business, you'll need to do some research to find the ideal spot to set up shop. Try reading property industry journals such as Estates Gazette and Property Week - they publish regular surveys of different areas and industry sectors. Make contact with local businesses and organisations, such as Chambers of Commerce or Business Link, to ask advice on where to buy. If you have personal contacts that have business premises in your area, call them to ask whether they know of opportunities.
Financing the purchase
Unless you have a large amount of spare cash, you are likely to need a commercial mortgage to finance the acquisition. Bear in mind that you will need to commit to a minimum mortgage term of around 15 years, and will have to provide details of your business accounts and cash flow projections to the lender.
Typically, commercial mortgages require a substantial deposit - perhaps between 20 per cent and 30 per cent. The property will be at risk if you are unable to keep up mortgage payments.
Read our guide to commercial mortgages for more details.
Setting up your premises
When you move into your business premises, put aside a budget for:
- Decorating costs, for example sanding and varnishing floors, painting
- Removal costs from your current premises
- Buying office furniture and equipment
- Setting up IT and telecoms systems
- Ordering new stationery and other branded items with your new address printed on them
Hiring professional consultants
Unless you are a cash buyer, you will need to have a survey carried out as part of your mortgage application. Your surveyor can also advise you on the state of the market, guide you on the value of premises, assess a property's condition and investment value, and negotiate a price on your behalf.
Arrange to have a full survey carried out, rather than depending on your bank's survey, since you could be liable for any problems that were overlooked.
Your lawyer can advise you on the detail of your contract. They can also arrange exchange of contracts and completion of the transaction (usually 28 days following exchange) and negotiate the terms of your mortgage arrangement.
As a rule of thumb, the overall cost of buying commercial premises is higher than renting for the first five years, equal for the second five years and cheaper thereafter. So you should view it as a long term investment in the health and security of your business.