Prompted by a ‘How do I get started?’ phone-call.
You want to develop a permanent commercial space, but don’t know where to start?
Perhaps there’s something here for you.
1 – Where does my business need to be located?
This relegates all other decisions. Most of the time you just have to be in the right place. Especially if you are a retailer where the decision is almost always about footfall (people through the door). Look for where your customers are. That’s usually where your competitors are too.
For commercial space such as offices, you look at transport links, proximity of suppliers and partners, where you clients are, and of course your workforce. Again businesses tend to cluster together in a street or district even if they compete.
We are nearly always asked to design a space after a lease has been agreed. In some cases we’d not have advised on taking a particular building. Due to location, and sometimes the amount of work that needed doing internally to get the shell up to scratch.
Ask – Where is the best place to get in front of your market (with the least costs and overhead)?
2 – How can I negotiate the best lease?
Build in flexibility. Break-out clauses in the contract can be key (After 5 years is typical). Understand the legal structure and relationship between your lease of the other tenants within the same building. Understand clearly the roles of you (the tenant), and the building owners (the landlord). Is there a ‘rent free period’ available as a sweetener.
A word of warning. Most commercial leases are ‘Full Repairing and Insuring’. This only benefits the landlord. It pushes as much of the cost of owning a building onto the tenants. It’s up to the tenant to understand before they take the property that it is in ‘good and tenantable condition and repair, and fit for the purpose for which it is let’.
On leaving the property you will have to reinstate it to the condition you first found it in. In many cases this means striping out everything you put in, and at your cost.
Ask – How can I ensure my lease agreement does not become a ball and chain for my business?
3 – Do I need to hire some professional help?
We’d say yes on three fronts.
First, bring in a commercial building surveyor to assess your potential space or building, just like you would when buying a home. Use the report as a negotiating tool with your landlord.
Surveyors often have a specialism ie. retail space (they will know all the pitfalls when understanding how good a space is for developing a shop concept).
Second, think ahead. If you have a preferred contractor get that firm down to the site. Get their take on the fit-out costs involved using a rough sketch plan of what you intend to do (they will also be able to advise on the condition of the building). They will pick up all kinds of issues that you won’t see.
Third, if you have started conversations with a designer (sketch plans), ask them to site as well. They also have a different perspective. They will be able to see if a space will work in the way you had hoped. Make sure they meet your contractor to see how they get on. Its a very important relationship to nurture.
Ask – With all this new knowledge, does this effect (in a positive and/or negative way) the vision I had for the business? Can I still go ahead?
4 – How can I make my budget go further in my chosen building?
For a new concept.
Let’s say it looks likely that you will be investing more into your lease than you had imagined, because you rightly chose your retail site based on location (footfall) and flexible contract terms.
This is OK, but it leaves you with a funding issue for the fit-out works. In this case we use the term ‘phasing’ in the construction world – If you can get in and run your business first with a minimal spend, you can do more work later as the business model develops. After initial trading, concepts nearly always change anyway.
For repeat concepts.
Not really the focus of this post, but tried and tested formats usually go into a unit with a one hit fit-out. All the kinks have been ironed out. Also the second time around, its a considerably cheaper process. If you have the urge to play with an established fit-out model, then read as if for a new concept. Just as with business models, if one of the elements of your offer changes, then it could be back to the drawing board.
As an example. You want a retail space with a cafe adjoining. You want it to be up to the same standard as other high street operators.
New concepts are often delivered for around £100/square foot at commercial rates, including most equipment and furniture at an above average specification level. There will be other items like IT equipment, sound, decorative elements, graphics and consumables that will add to the sq/ft price.
However, this figure can be shot down from many angles. Costs can vary wildly depending on the state of the building, the specification of the design, and a whole host of other factors. For example a cost can be reduced significantly if your are opening several units at once. Established high street operators will pay a lot less to roll out a standard format.
You can do a lot with a budget of considerably less than £100/square foot. You might be using your mate who is a builder. You might have a stock pile of your own materials and furniture. All these things will save you money. The golden rules are;
-Keep it simple. Build less rather than more (you can always do more later).
-Consider Phasing works.
-Build for change (it will happen).
Ask – How can I spend less in the early days until the unit is making money?
5 – How can I form a constructive relationship with my Landlord?
Landlords are interested in two things.
-Making a return on their property investment through leasing space (and selling/developing the building asset in the long run).
-Filling their buildings with high quality tenants that run thriving businesses (so they look after the premises).
We do a lot of work with landlords to make sure that our clients schemes will work. Where tenants and landlords agree is in creating spaces with longevity (for the contract term at a bare minimum) where a business can establish itself and become known.
Landlords and their agents are in the business of protecting the building asset from being degraded over time. Also they care about the quality of the neighbourhood as it directly effects the building value. The tougher your landlords requests are, the more likely it is that you are going to be sharing a building(s) with other high quality tenants.
One thought. Many landlords own many properties in the same street and often (particularly in major cities), many own whole neighbourhoods of commercial space. Remember that you might be looking at several properties owned by the same organisation. You might also need them again in the future it you move premises or upscale. Don’t burn any bridges.
You need to have a good idea of what you are going to develop before you go to the landlord. They will want to know what you intend to do in the space so a sketch layout is a bare minimum. They often (especially in retail) want to know how it will look, what materials you will use and how it compares with other high-street outlets. This will require a set of rendered visuals of the finished space. Be prepared.
Ask – How can I show a potential landlord how I will add value to their portfolio?
6 – Should I lease a character building?
It is easy to fall for a beautiful old building. Its character. Charm. Sense of heritage. This might well suit your brand and product, or the ethos of your company. It might just look really cool.
If you look round it in the summer you won’t feel the cold, but in winter its hard to motivate a team of people when they are freezing all day long. It might be cheaper than more modern units but there’s usually a reason for that.
I love period buildings. They add something to a space that you can’t magic up in a modern plasterboard box. In the past I’ve seen a retail concept work so well in a period building, only to fail dismally when applied to a new unit, just because the layers of history are gone.
On the Character Building (unless they have been fully retrofitted to modern building regulations standards);
-They are often a minefield of hidden costs.
-They are often listed as being of architectural importance. In this case ‘Listed Building Consent’ will be necessary which can delay a project for months if not longer.
-They are expensive to heat.
-They often require a complete overhaul of electrical and other services.
Its not the intent here to put anyone off. Just tread carefully.
Ask – Can I find a character building that has already been retrofitted to modern standards?
7 – How can I avoid planning applications and all that red tape?
You can’t, but you can work with someone who knows it inside out.
Planning applications are a way for the government, and more specifically local authorities to control the development and redevelopment of buildings and spaces.
In practice, we have found planning officers and building control officers very helpful. If you approach them with a clear idea of what you want to develop, show that you understand the issues, and have a clear set of drawings and proposals, they are more than happy to engage with you. Our advice would be to ask someone to quickly develop a sketch proposal and submit a pre-application advice notice so you can start a discussion.
Once you understand how the planning system works, you can then use this knowledge to your advantage. Many clients become very frustrated with the planning system. Often they feel that the requirements of the planning system start to control the future of their project.
We’ve never felt this is the case because we know the system well. There is usually a way to make your scheme work. Its important to understand the planning issues surrounding a space or building before you sign the lease.
The applications you might have to make;
-Planning Consent Approval – For change of use from one function to another. In some cases, the landlord will have secured and advertised the property as a particular class ie. A1 Retail. In other cases you will be adding space to that A1 use class and so still need a new consent to be approved.
You will definitely need;
-Building Regulations Approval – For all fit-out works. Your designer and contractor will have an inside-out knowledge of the building regulations and can advise on what is/is not going to be approved. The regulations are very explicit in their requirements, but in practice our view is that they are there to be challenged and we often figure out way of doing things to satisfy both the Local Authority and our client.
You might need;
-Advertisement Consent – For any form of external signage that promotes your business.
-Listed Building Consent – As noted previously.
-A Flood Risk Assessment – If a building is located on a river bank or coast and your unit (or access/escape to and from it) is on the ground floor.
-Biodiversity Studies – Think Bats and other small creatures if the project is in a rural area and you are changing part of the external fabric of the building or modifying a loft or roof space. Also just adding significant amounts of external lighting may be a problem.
Ask – How can I minimise my exposure to statutory red tape?
8 – What are my on-costs?
A few things;
-How much will a space cost to heat come the wintertime? Just like buying a house, imagine the place at different times of the year.
-What are the service charges that the landlord requires. Can I fix these so I know what my overhead is?
-How much does the fit-out/interior design scheme cost to run? Electrical costs for lighting, refrigeration, audio visual and computer systems will be an order of magnitude higher than for domestic property. Depending on which statistic you believe, it is said that 85% of the lifetime costs of a building are in servicing, maintenance and heating. 15% of the costs account for the initial construction. The real costs come in the use of space.
Ask – How will I fund this venture beyond the initial opening?
9 – Can I think about this whole thing in a new way?
Do I need a building at all? Perhaps I should consider temporary space, or taking space by collaborating with other businesses?
Is the real answer to look again at your business model?
Lets take the example of a brewer who shall remain anonymous. Their initial dream was to own a pub and brew their beer in a barn next door. That way they controlled the product, which is far better than the standard fare, and they also control the environment within which it is sold (distribution). Their product delivered to the market in the way they wanted.
Made sense, until they realised that leasing or owning a pub brings more than a few problems in additional overheads and red tape. Not to mention the unsociable hours.
Solution – They enjoyed the interaction with customers but the overhead of a building would be better focussed on housing just the brewing function. That’s their killer product and they have a good reputation.
So they set up in a much cheaper industrial unit with good gritty aesthetics and more space to grow in the future. They invite customers in for ‘tasting sessions’ so they still get to interact with the drinkers and get their feedback. They pick and choose who they supply, keeping some sort of control over their distribution, and have a much more focussed business concentrating on the one thing they are really good at. This is a good example of how a company evolved its dream with a bit of business logic, and ended up with a space that is completely unique (competitive advantage).
Ask – Am I looking at this problem of ‘a space’ in the right way?
We’d recommend the book Business Model Generation to help with this.