How to find the right business property
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Posted: Wed 10th Apr 2024
If, until this point, you've been running your business from a spare room or your kitchen table, taking on a commercial property is an exciting milestone in your growth.
As a small business in London, you're lucky to have access to a plentiful supply of properties. From converted shipping containers to fully fitted units in new developments, there's something to suit all needs and budgets.
However, you still have choices to make, and finding the right property for your business can be challenging if you don't go in with a plan.
What are your options?
Buy a property (with or without a mortgage): best for businesses with a significant amount of capital where the property is integral to the business functioning – like a performance venue or community centre.
Rent a commercial property as a tenant: a great option for most businesses, especially when starting out, as you're not tied down to an expensive mortgage.
Try a more flexible solution: such as a shared or managed workspace or even a business incubator.
Set your budget
Your budget will be the most decisive factor when choosing a property, but it doesn't have to be limiting. Instead, think of it as a useful tool for finding a property that's just right for your business.
What your budget should include
Cost of mortgage/rent.
Daily running costs.
Business rates – a fixed cost based on the size of the property.
Stamp duty – payable on leased commercial property more than £150,000 in value unless your lease is for seven years or more.
Legal and surveyors' costs.
Alterations – to meet your requirements as well as building, health and safety and fire regulations.
Fixtures and fittings.
Find the right location for your business
The location of the property is just as important as the property itself. Few businesses can ignore its influence. Locations across London are all different in terms of costs, character and the type of customer.
When choosing a location for your business premises, you need to consider:
Access: think about how easy it is for your customers and your employees to access. What's the parking like? Is the property near to public transport? Are there congestion charges or delivery restrictions that could cause problems for you or your suppliers? Does it have disabled access?
Local amenities: is there a decent supply of banks, cafés, shops, pubs, gyms and any other amenities that will make it easy to attract and retain staff?
The character of the area: does the character of the area fit your business image?
Safety: is the area well lit? What's the recent record of crime? You want your customers and staff to feel safe.
Whether or not it's up and coming: new local projects and developments suggest an up-and-coming area that's likely to attract footfall.
Local authority charges for services: you'll have to pay for services like waste collection, whose cost can vary between areas.
Demographics of passing trade: the populations of different areas can have very different demographics (or characteristics – for example, they might be older, younger, families, students, renters or tourists. Make sure the local demographic is in line with your target market.
Competitors: identify businesses in the area that could compete with you for customers and staff. A flooded market can shrink prices and profit margins for every business. However, competition isn't always bad. Similar local businesses are a good indication that you're in the right area, and competition can promote innovation and attract a larger overall customer base.
Planning restrictions: are there any restrictions that would prevent you from conducting your business or fitting out your property to your requirements?
Planning classifications
Next, you need to consider what planning classification you need. Remember, just because the lease says you can use a property for a certain purpose doesn't automatically mean the property has the right planning use class.
In the UK, there are a number of commercial property classifications that restrict what activities can and can't be conducted from the premises. These classifications make sure there's a balance between residential and commercial use, and limit disturbance to neighbouring properties.
The full list of classifications includes:
Class B2: general industrial use.
Class B8: storage or distribution.
Class C1: hotels.
Class C2: residential institutions.
Class C2a: secure residential institutions.
Class C3: dwelling houses.
Class C4: houses in multiple occupation.
Class E(a): Display or retail sale of goods, other than hot food.
Class E(b): Sale of food and drink for consumption (mostly) on the premises.
Class E(c): Provision of:
(i) Financial services,
(ii) Professional services (other than health or medical services), or
(iii) Other appropriate services in a commercial, business or service locality.
Class E(d): Indoor sport, recreation or fitness (not involving motorised vehicles or firearms or use as a swimming pool or skating rink).
Class E(e): Provision of medical or health services (except the use of premises attached to the residence of the consultant or practitioner).
Class E(f): Creche, day nursery or day centre (not including a residential use).
Class E(g): Uses which can be carried out in a residential area without detriment to its amenity:
Class E(g)(i): Offices to carry out any operational or administrative functions.
Class E(g)(ii): Research and development of products or processes.
Class E(g)(iii): Industrial processes.
Class F1: Learning and non-residential institutions – Use (not including residential use) defined in seven parts:
F1(a): Provision of education.
F1(b): Display of works of art (otherwise than for sale or hire).
F1(c): Museums.
F1(d): Public libraries or public reading rooms.
F1(e): Public halls or exhibition halls.
F1(f): Public worship or religious instruction (or in connection with such use).
F1(g): Law courts.
Class F2: Local community – Use as defined in four parts:
F2(a): Shops (mostly) selling essential goods, including food, where the shop's premises do not exceed 280 square metres and there is no other such facility within 1,000 metres.
F2(b): Halls or meeting places for the principal use of the local community.
F2(c): Areas or places for outdoor sport or recreation (not involving motorised vehicles or firearms).
F2(d): Indoor or outdoor swimming pools or skating rinks.
Sui generis: these are uses that don't fall in any particular use class and include theatres, scrapyards, petrol stations, nightclubs, launderettes, dry cleaners, taxi businesses and various other uses.
This also applies to multiple-use properties. Often, there is a "feeder" use – for example, if a museum has an office attached, the office is "ancillary" to the museum, as it wouldn't exist without the museum. Therefore, the office is Use Class F1 along with the museum. The office is not in Use Class E.
In 2020, the use classes were changed, meaning any property you lease may not have an up-to-date classification or may have a more generic "business" use attached to it. Make sure to check the classification is appropriate for your business.
Planning permission and classifications are granted by the local authority in which your business is based. You can apply to the local authority for a change of use if necessary. You should also speak to your local authority if there are any planning issues or if you need professional advice. There may be a charge for this service.
Consider your requirements
After location, the next most important thing to consider is what you need from your premises, including size, layout, facilities and utilities.
Size: as well as providing enough space to successfully conduct your business, the property must be large enough to meet your legal obligations to staff and customers. Whether renting or buying, you must have at least 11 cubic metres per employee.
Structural requirements: depending on the nature of your business, you may need to have particularly high ceilings or heavy load-bearing floors.
Facilities: if the property doesn't already have kitchens, toilets or breakout rooms fitted, make sure the size and layout of the space is suitable to include these facilities.
Utilities: make sure the power supply and drainage is appropriate for your business, especially if you have special requirements like three-phase electricity.
Expansion: if you plan to expand your business within the premises, make sure there's capacity to do so.
Restrictions: make sure any restrictions on delivery times, noise and pollution levels and waste disposal will not prevent you from conducting your business.
Understand your responsibilities
Taking on a commercial property comes with certain responsibilities that help to protect your business, people and the environment.
Health and safety
If you have fewer than five employees, you don't have to have a written health and safety policy. However, it's still a good idea to have one as it can help to bring down your insurance premium and impress potential lenders.
When drawing up a health and safety policy, consider all the possible risks that your employees may face and any potential hazards they could be exposed to. Make sure the policy is accessible and easy to understand. The GOV.UK website has templates you can use, as well as advice on risk assessments.
Environmental regulations
To protect the environment, all businesses must meet regulations on air quality, water quality, waste, chemicals and spillages, so make sure your facilities and practices abide by these rules.
Certain businesses – including any that pose a particular risk of pollution, flooding or affecting drainage – may need an environmental permit to operate.
Visit the government's website to find out about the environmental management areas that might affect operations at your premises, or whether you need a permit to operate.
Insurance
You must have insurance in place to protect your premises, employees and customers. By law, you must have employers' liability insurance of at least £5 million from an insurance company that's authorised by the Financial Conduct Authority.
You should also consider taking out public liability insurance, building cover and, if necessary, stock and contents insurance.
Business continuity and disaster recovery
You should plan for how events outside of your control could disrupt your normal business operations, including:
Losing access to the office.
Staff shortages.
Losing your website server.
Disruption to transport networks.
A vital piece of machinery failing.
Develop a plan that allows your business to continue operating in a range of scenarios. You can find more information on this subject at the Business Continuity Institute website.
You should also think about disaster recovery, which refers to security planning for specific events. For example, securing your IT infrastructure or putting in place contingency measures in the event that your IT is rendered unusable.
Your cultural and community space toolkit
If you're reading this guide as part of the toolkit for opening, running and growing a cultural or community space, next look at step 17: the landlord and tenant relationship.
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