What options are there for company premises when the lease is up?
I run a 65-employee business based in London and am coming to the end of my office lease. I’ve been offered the chance to renew on the same terms, which seems reasonable but others advise I look elsewhere for introductory offers or perhaps even buy. How is the leasing market at the moment?
A. Andrew Smith of LSM Partners writes:
The property climate is pretty tricky at the moment. My advice, if you are thinking about making a change in your leasing position, is to get out there fast because supply is drying up quite noticeably. Choice has become more limited, and the volume of tenant demand will drive prices up. Real estate supply is always slow to respond and there will be an availability gap increasing tightness, exacerbated by London winning the 2012 Olympics bid.
You should also be thinking about the next property stage, how long will the up-cycle last? Will it be three, five or 10 years? What’s your view on the economy and therefore the property market? What about the Olympic effect and duration? If you think we are going to see a strong up-trend for the next five or seven years, which I think is on the cards, then think of taking a 10-year lease as opposed to a five-year lease. If you get the timing wrong you’ll be either straight into the next crash (post-Olympics) if you’ve got too long a lease and can’t get out, or you’ll be in a short-medium forward up-trend where you have to renegotiate your terms and your rent is going to go up hugely. But, if you are prepared as an organisation to take a view on what the London economy might be doing relative to your business and relative to real estate, you will then know whether to take a three, five or 10-year lease and fix the terms accordingly.
At the moment there are good advantageous points for most business space occupiers if they’ve got the courage to grab the opportunities. Why not consider buying your building if you are able to take a 10-year view? In London the financial costs of buying stack up very well relative to rent and likely rental growth. There is one downside though, the buildings available tend to be very small, individual and are quite hard to find. Nevertheless, I think we’re on to something; this is going to become an emerging property sector as the years go by.