A Guide To Leasing Commercial Space

If you mention renting office space to most people then the picture which forms in their mind will be of a traditional ‘office’ – rows of desks or cubicles, each equipped with a laptop and a telephone. Here at AEIP we rent out thousands of square feet of exactly this kind of office space, ideally situated in one of our locations close to the centre of Aberdeen.

We know from experience, however, that many other types of business can benefit hugely from the kind of flexible spaces and leases that we specialise in. In this guide we’ll look at the process of leasing a business unit, what to look for when making your choice of unit and the kind of questions you need to ask. Every kind of business, from retailers through dentists, doctors and therapists to food delivery kitchens and fitness studios, can benefit from leasing a space of their own, which brings us to the first question you need to ask yourself as a business owner – why lease a unit?

Why You Should Consider Leasing a Business Unit

There will come a point when even a business which started at your kitchen table or in your garage becomes too large and complex to continue running from home. The choice you face then is whether to purchase a business unit or lease one. For a business with massive cash reserves or access to limitless capital support the permanence and investment potential of purchasing a business unit may seem appealing, but not many businesses moving into a unit for the first time are in this kind of a position. In addition, leasing rather than purchasing – particularly under the kind of flexible terms offered by AEIP – leaves your business easily able to respond flexibly to any changes in your own situation or the wider business environment. In simple terms, the reasons for leasing a business unit once you realise you need a dedicated space are as follows:

Cost – while we’ll break down the costs involved in renting a business unit at greater length presently, the overall point is that leasing involves a much lower initial capital outlay than purchasing a business unit. In addition to this, in many cases on-going costs such as maintenance and repairs will also be covered by the rental paid, rather than representing an initial expense.

Flexibility – leasing a business unit, particularly if you take the time to ensure that the lease agreement doesn’t lock you in for an overly prolonged period, offers a high degree of flexibility. If you agree the right terms you’ll be in a position to shift to a larger or smaller unit as and when your business requires such a shift. The alternative is to find yourself paying for space that you don’t really need or struggling to operate in a unit which it too small.

As a start-up, in particular, the option of agreeing an initial short-term lease will leave you able to respond in an agile manner if things go well and the business grows quickly, or your initial choice of unit doesn’t quite meet your requirements. The flexibility will also mean you’re able to respond to short term opportunities, i.e. by taking on some more space temporarily in order to meet a particularly large customer order.

Location – leasing a business unit in the right location will mean you have access to things like transport links, passing and local trade and partner businesses. Purchasing in this kind of prime location is a prohibitively expensive option, while leasing a unit within a larger hub, such as AEIP’s Innovation Park, is an affordable means of landing your business in the ideal spot. In many cases, the industrial unit will have been constructed in a particular location precisely because of the advantages already mentioned.

Less Responsibility – leasing a business unit will put you in the ideal position – that of being able to concentrate on actually running your business and servicing your customers while day to day responsibilities such as maintenance, security and cleaning will be handled by the landlords. The right property management package will remove many of the time-consuming responsibilities and tasks associated with a business hub from your shoulders, leaving you free to build your business.

Facilities – many leased business hubs are located within larger hubs (AEIP is an example of this) and that generally means that they come with a range of facilities already built in. These can range from parking spaces for employees and customers to somewhere for employees to grab a coffee and some lunch and in some cases a general reception to welcome anyone visiting your business. On a more basic level, utilities such as lighting, electricity, HVAC and Wi-Fi are generally included as part of the lease, making it easier to control costs and meaning that the unit is in many ways ready to be up and running from the day you move in.

Networking – if you’re business unit is located within a larger hub you’ll be ideally situated to network with other local businesses, building the kind of contacts that can prove to be invaluable to any fledgling business. In addition to these networking opportunities a location within a hub presents the possibility of customers for neighbouring businesses opting to pay a visit to yours while they are in the neighbourhood.

The Lease

When you sign a commercial lease you’re making a big commitment, one which could have a massive impact on the potential future success of your enterprise. While you should always seek out professional help before entering into any such agreement – i.e. the advice of a solicitor who specialises in commercial properties – you should learn to look out for certain aspects of a lease for yourself. The agreement could have a decisive impact on your business, so it’s imperative that you have a firm grasp of exactly what the lease is and how it will operate.

In simple terms the lease is the formal agreement between your business and the landlord. It sets out the conditions of your use and occupation of a commercial space for an agreed length of time. It will also cover the responsibilities of the landlord and of you, as tenant.  Things to look out for include:

The term – how long the lease will run for and how and when it can be varied

Rent – the amount of rent payable, and how it will be paid (i.e. monthly or quarterly on a certain date via bank transfer)

Other costs – details of any other costs such as a service charge

Rent review – a clause setting out any periodic rent increases, i.e. the rent will increase by inflation or inflation plus a set percentage once per year

Break Clause – whether there is an option to end the lease at an earlier date

Renewal – the options for renewing the lease once the initial term has been completed

In some cases, the lease may detail set conditions which the landlord has to meet before the tenant enters into a formal agreement. These could include agreed works to be carried out within the unit, or the granting of specific planning permissions. Custom alterations made to the unit for the business to be able to operate will usually be referred to by the terms ‘buildout’, ‘fit-out’ or ‘tenant improvements’. This clause in a lease agreement will detail the work to be carried, the scheduled timeline and the responsibilities of the tenant and the landlord in terms of costs.

Building Class

Another thing to look out for within the lease, and when looking for a business unit to lease in general, is the building class. This refers to a system of categorisation of commercial properties which is done on the basis of factors such as location, amenities, age and quality. The classifications generally range from Class A, with the highest quality and amenities, to Class C, which are often older and have fewer amenities. By viewing a range of units with different classifications you’ll be in a position to decide which meets your requirements.

Non-competition Clause

Some commercial leases include a non-competition clause. This provision places restrictions on a tenant in terms of the specific activities which might impact on similar businesses within the same location. Alternatively, of course, some landlords might opt to group similar businesses together to create a cluster effect and form a ‘district’ noted for a particular type of business.

Questions to Ask

Many of the questions that need to be asked when leasing a commercial space are those which you, as a potential tenant, need to ask the landlord. Before this, however, you need to think about the questions you should be asking yourself. List the answers to these questions and you’ll have gone a long way toward building a profile of the kind of commercial space you’re looking for:

Type

What type of space do you need? Will it be an industrial workshop, a retail unit or a studio space? In some cases you might want to combine two or even three different types of space – i.e. an artist’s studio to create artefacts linked to a retail space to sell them. Knowing the type of space you need will narrow down the units worth looking at or, alternatively, push you toward a location such as the AEIP Energy Park, which has units flexible enough to be configured to meet any needs.

Space

Breaking down the details of your business will enable you to estimate exactly how much space you’ll need. As an example, you may need to have some administrative office facilities within an industrial space or a retail unit, and knowing the number of desks you’ll want in the office will make it easier to calculate how large the office needs to be.

Facilities

Draw up a comprehensive list of the facilities your business will need. Telephone lines and an internet connection are par for the course for pretty much any business, but ask yourself whether your business will require employee facilities such as a kitchen space or a canteen, as well as meeting rooms – either dedicated or available for use – audio visual options for presentations, bathroom facilities and break-out areas. What will you need, and what is a particular space offering to provide?

Branding

What impact will the commercial space have on the branding of your business? In simple terms, will it create the kind of impression you want your business to convey? While you may be able to modify the décor and styling of the interior of the business – check the lease to see if this is the case – the exterior will play a huge role in creating an initial first impression on visitors. A modernist, cutting edge space, for example, will be ideal for a tech start up, while a more ‘olde-world’ location might be preferable for a business working in a traditional sector – such as a law firm.

Rent

Ask yourself what you can realistically afford to pay. Run an audit of your existing income and outgoings, and reach a figure which you could meet on a monthly or quarterly basis without leaving your finances overstretched. This figure should also take into account other expenses, such as any service charge due and the business rates charged. Once you’ve reached a realistic figure you need to be determined to stick to it. The temptation to stretch yourself just a little bit more when you see what you think is the ideal commercial space with a rent which is just beyond your figure needs to be resisted. It’s better to have a space which is good enough but affordable, than one which is absolutely perfect but will negatively impact your cash flow.

Business Rates

Business rates are charged on the majority of commercial spaces, such as pubs, shops, factories and offices. The system of business rates which applies in Scotland is based on a charge of roughly 50% of the annual rent, and when you make the decision to move to a commercial space it is one of the biggest overheads you’ll have to deal with. The calculation mentioned above – of the rent which you feel your business can support – needs to be made with the business rate it will generate firmly in mind. The system in Scotland is based a rateable value, with all commercial properties being valued on a specific date in order to ensure fairness and consistency. The current valuations – the revaluation took place in 2023 – were based on a valuation date of 1^st April 2022. Currently, revaluation takes place every 3 years.

The valuations are carried out by the Scottish Assessors, with assessors appointed by local council areas. There are currently 14 assessors, with Valuation Joint Boards meaning that all 32 local council areas are represented. The assessors are entirely independent, and once the rateable value (RV) has been established the business rates liability is calculated using a uniform business rates/poundage which is set by the Scottish Government every year. The good news is that there is an online calculator which you can use to calculate your business rates liability here. Finding out what you’ll have to pay in business rates will make it much easier to decide whether a commercial space is affordable.

Arrange A Viewing

Once you’ve identified a few suitable spaces for your business, arrange to go and see them: check that they meet the requirements you have prioritised, look around the surrounding area and investigate other businesses in the vicinity. If they tick all the boxes you can start to negotiate the terms of the lease and get ready to expand your business.