Second to people, expenditure on offices or any other form of commercial property represents the next biggest annual expenditure for any company, yet there is still a lack of understanding around what different property models entail and the true costs they incur.
So, if you are looking for a new office or looking to review your existing property portfolio, you need to be aware of what models are available, the pros and cons and also whether there are any hidden or indirect costs.
Historically, the most common way of acquiring commercial property has been via a lease, according to the pound per square foot and length of term.
Leases normally require an upfront deposit with rents payable on an annual or quarterly basis. On top of this you need to factor in legal fees, agent fees, land and property rates, electricity rates, water rates, heating rates, annual service charges, building management and cleaning costs.
Likewise, with a capital purchase of commercial premises, with the exception of rent, you are subject to the same costs, apart from the fact that you have to free up cash for a deposit, financing or to buy a building outright.
Choosing the most suitable property option?
Picking the most appropriate property strategy will largely be dependent on an organisation’s circumstances and their overall business objectives. There’s no one-size fits all approach, rather all models have both merits and drawbacks, but should be measured on a case by case basis.
Leasing for example may work well for organisations that require the same property footprint in the next 5-10 years, but if you are rapidly expanding businesses or experience a dramatic shift in size or direction you may incur hefty exit charges or dilapidation costs. Changes in the workplace should also be considered, as introducing flexible or home working could potentially leave you with a legacy of excess capacity that you would still be committed to paying for.
For cash-rich organisations, a capital purchase could make good financial sense and if property values continue to rise then buying now could be sound investment for the future. On the downside though, if you tie funds into a property (as much as 25 years), you reduce the amount that could be invested in the business itself – you may have the spare cash now, but it is almost impossible to foresee what will happen in the future.
With owning property you may also face additional costs that are beyond your control such as fluctuating business rates and/or unforeseen charges such as the empty buildings tax that saw a 19% hike in 2012 compared to the previous year. As an owner occupier you can benefit from capital allowances, but you also need to balance this against the costs of managing the property and whether you have the time and necessary in-house skills to manage this successfully.
Before making a final decision on property, companies should also take into account unknown or hidden costs that have the potential to create a ‘black-hole’ in an organisation’s future finances and balance sheet. While it is relatively straightforward to calculate costs such as rent, rates, facilities management (FM), dilapidation and legal fees, below are the typical overheads that are often overlooked.
• The cost of money for capital expenditure
• The cost of overruns – 90% of implementations in the industry go over time and over budget
• Project management of the implementation
• Legal costs associated with a lease
• Maintenance contracts – building, plant and machinery, ground maintenance, day to day (for example carpet cleaning), technology hardware
• Real support people costs – recruitment, training, support, attrition, salaries, salary increases, sickness and holiday cover
• General housekeeping
• The cost of unused space during roll out
• The cost of unused space once the operation is up and running
• Future upgrades – through health and safety regulations, technology advances
• Cost of getting things wrong – such as employee numbers, business forecasts, installing the wrong equipment.
Therefore, the true cost of property encompasses a multitude of inherent costs, both identifiable and hidden, from many different sources. In many companies gathering this information can be difficult and time-consuming as some departments maybe slow or unsure of what data is really required or relevant. Incorrect decisions can lead to expensive legacy costs incurred by the likes of inflexible leases and dilapidation that can haunt a company and its balance sheet for many years.
How can Titanic Suites Help?
As a unique and Flexible serviced office provider in the heart of Belfast City centre, Titanic Suites can take the headache out of finding a home for your business.
The fully serviced model offers a turnkey solution which reduces capital spend, allows flexibility as and when you need it to grow as your business grows.
Possibly more importantly, the monthly fee is inclusive of rent, rates, all utilities, broadband, cleaning etc, so you know exactly how much you’re spending, allowing you to focus on running your business and making money.
The licence agreement structure is built around you, so whether you need office space for a day, week, month or the longer term you’ll find that Titanic Suites is the “Perfect partner for your Business.”