Industrial buildings are straightforward, but signing a lease involves a slew of legal and practical considerations that must be taken into account to guarantee you get the best property for your needs. Many businesses still opt to rent an industrial unit in order to free up capital and delegate the operation of the facility to a third party. It is still feasible to purchase an industrial unit, but before making a decision, make sure you understand what is best for your company. What then, is the cost of renting an industrial unit? Find out in this article.
Purchasing vs. Renting an Industrial Unit
Although renting commercial space is frequently the most cost effective option for most businesses, purchasing an industrial unit can be a wise investment if you have the funds. Industrial space offers a flexible use that may be divided into several areas and is usually easier to rent out if you desire to pass it on to a tenant. However, if you choose to buy an industrial unit, especially a heavy industrial property, the start-up costs might quickly add up.
If you decide to rent an industrial unit, you will have more flexibility as your company grows. You may normally negotiate a lease length that suits your needs, as well as other details like break clauses. Although you will need to hire the services of a team of commercial property consultants to assist you with your search and lease negotiation, the upfront costs are quite minimal. If you rent a unit, you won’t be subject to interest rate increases, but check to see how your rent will be reviewed before signing on the dotted line.
Define Your Property’s Specifications
Your business objectives will assist you in determining what you require from your new industrial location. Consider your projections for expansion, the size of your personnel, branding, requirements, facilities, parking, planning, and, probably most crucially, your budget.
Create your timetables and go to work on achieving your end objective. Once you’ve decided on a brief, utilize Harness Property’s search option to create a shortlist within a specific area or a list of commercial property brokers that are experts in your chosen location.
The Location is Crucial
Many of the principles for finding an industrial unit are the same whether you are buying or renting. The location of your business should be at the top of your priority list. Because most industrial units for rent are located on the outskirts of towns or cities, it can be tempting to focus solely on local road networks, large vehicle accessibility, and the availability of skilled staff. Despite the importance of these elements, the rise of digital means that the possibilities for renting industrial units are becoming more diverse.
It’s important to be close to other amenities, such as a bank to deposit cash, a post office to handle large deliveries, and shops for your employees, in addition to the local infrastructure.
Make sure you understand the local market, including rental prices, tenant demand, and vacancy rates. You’ll want to know if the selections you have are reasonable and typical of rents in your selected area.
What is the Cost of Buying or Renting an Industrial Unit?
Buying or renting an industrial unit can be a difficult task. So, make sure you have the right team of professionals on your side. Your list should include a commercial real estate agent, a lawyer, and a surveyor. These professionals can add up to 10% to your total cost. However, their expert advice is well worth it. It will save you time and potentially a lot of money if something goes wrong later on.
The most difficult part of renting industrial property is renting the lease, which will include a thorough summary of the cost associated with your unit’s rental. Business rates are computed by multiplying the rateable value of the property by the uniform business rate. They are one of the most significant additional costs (UBR). Business rates typically add roughly 40% to the cost of renting a commercial property. This is according to the Property Data Report 2014. They are updated every five years, with the most recent updates occurring on April 1, 2017. Keep in mind that you may be responsible for additional business rates, so double-check your lease before signing.
Cost of Renting an Industrial Unit
If your firm is located within a BID, you may have to pay to address local priority issues. Furthermore, commercial unit operating costs can mount up quickly, so be sure you understand your Energy Performance Certificate (EPC). This will determine how much energy your property will consume and provide advice on how to lower your consumption and costs. Commercial units are rated from ‘A’ (the most efficient) to ‘G’ (the least efficient) (least efficient).
If you are renting an industrial unit, you’ll almost certainly have to pay the service cost. So, find out if you’ll be responsible for maintaining the various sections of the structure. Typically, the tenant is responsible for the interior design and upkeep, while the landlord is responsible for the outside. However, there may be additional substantial improvement work that is required. This can be costly, so examine what you are eligible to pay in addition to the standard service costs. The same may be said about insurance. Check your policy’s coverage for your business activity, but make sure it doesn’t duplicate anything your landlord currently has. The cost of insurance is sometimes shared between the landlord and the renter under a lease.
Most property transactions, including leases, are subject to Stamp Duty Land Tax (SDLT). This is levied when the value exceeds specific criteria. The price of a property can have a huge impact on the amount of SDLT you’ll have to pay. So, check the government’s website for the most up-to-date thresholds before making your choice.
Charges for water, drainage, gas, and electricity should also be considered. Finally, you may be able to claim capital allowances on assets like machinery and equipment. These are deducted from your earnings (or a portion of it) before tax is paid.
Industrial Units Health and Safety
Unsurprisingly, the regulations governing the occupation of industrial property are stringent, so it’s critical to follow them. Begin by determining who is accountable for adhering to the required fire and health and safety rules with your landlord. If you’re unsure, ask your commercial real property lawyer to clarify everything to you.
If you employ people, you have a general duty under section 2 of the Health and Safety at Work Act 1974 to guarantee their health, safety, and welfare (to the extent that it is practically possible). You’ll also have a responsibility to those who visit your premises but aren’t employees.
Employees’ Health and Safety
Providing sufficient ventilation, temperature for indoor workplaces, work in hot or cold conditions, lighting, cleanliness, and waste management will all contribute to your employees’ health. Consider the upkeep of your workplace, the floor and circulation routes, hazardous substances, transparent glass, windows, and doors when considering the safety of your employees. Your welfare responsibilities will include providing proper sanitary facilities, washing facilities, drinking water, changing facilities, and rest areas for staff.
In an industrial setting, the repercussions of failing to meet your health and safety requirements can be severe. These are both in terms of possible human cost and financial penalties. The government has put out a helpful document that explains your responsibilities. Always seek competent legal guidance if you are unsure.
If you’re storing important machinery or tools, be sure the building’s security is adequate both during the day and at night. Is there a security system, security personnel, or CCTV cameras on the premises? Are your property’s locks, as well as any communal access, adequate? Any losses should be covered by your insurance, but prevention is always better than cure.
The process of Negotiating an Industrial Lease
A lease is a legally binding document that spells out the tenant’s and landlord’s responsibilities. During negotiations, you have the chance to adjust or challenge any aspect of the lease agreement. So, make sure your property lawyer and agent are well-informed.
The term of the leasing agreement is the first thing you should think about. The average length of a new lease is shrinking, now hovering around 2-4 years. But with the current demand for industrial property, your landlord may be willing to hold out for longer. If you require a larger unit, you will most likely need to agree to a longer lease. However, make sure it is in line with your business objectives.
Negotiate break clauses in your lease agreement if your growth plans are less definite and you require more flexibility. These are dates on which both parties have agreed that the lease can be terminated. You’ll still have to give two months’ notice. And, your landlord can only utilize the clause if you’ve signed a lease. Subletting may also allow you to terminate the arrangement early. So, be sure your lease allows you to sublet the space. If you desire more flexibility than a lease can provide, you may want to consider licensing an industrial unit. These normally last six months, and the related charge covers the majority of the costs.
Signing a Lease
Before signing on the dotted line, make sure you agree on how the rent will be calculated, how it will be paid (both frequency and method), and whether a deposit (typically 3-6 months’ rent) will be required. If you’re a new firm, you may also need to submit references to show that you’ll be able to pay your rent, Make sure the amount you will be paying and any rent reviews are reasonable. You should have a strong sense of the acceptable rentals in your chosen neighborhood. If a landlord anticipates significant infrastructure investment in the region, he or she may consider raising rents to reflect the changes. Finally, find out if there are any extra charges for shared services like security, reception, or car parking.
Industrial property is divided into several categories
Before you agree to rent industrial property, be sure you select the appropriate building class. The bulk of commercial units fall into the B2-B8 classifications, with the majority falling into either B2, which refers to general industrial use, or B8, which refers to a storage or distribution center. The intermediate classes are for specialized industrial processes that are more strictly regulated, such as those that create particular chemicals. If you simply want to utilize your space for office purposes, it will most likely qualify as B1.
Due diligence on Renting an Industrial Unit
Make sure you visit all of the houses on your shortlist and commission a full survey to find any potential issues with your preferred structure. The Schedule of Condition report should give you a good picture of how the unit is doing and point out any work that needs to be done. Remember that certain industrial leases impose repairing requirements on the tenant, so make sure to include the report with all photographic documentation in the tenancy agreement.
As part of the conveyancing procedure, local searches are frequently required. These will advise you of any future plans for the area that may affect the property. They will also help you prevent any unexpected costs after completion. Once you’re satisfied with these searches, it’s time to get your funds ready for contract exchange and finalize the details.
After both parties have agreed on the conditions of your lease, your lawyer can start drafting Heads of Terms. Make sure you thoroughly comprehend each of the terms. After the lease has been exchanged, you will be legally obligated to follow it. After the deal has been finalized, you can move into your new industrial unit and get down to business.
In Conclusion,
Storage, production, and distribution are all possible uses for warehouse and industrial space. Each industrial unit you’re renting will have its own unique set of criteria and tenant responsibilities, so make sure you understand the facility’s intended purpose and cost. And, ask a lot of questions of the owner, landlord, and listing agent to ensure the space matches your needs.
Renting an Industrial Unit FAQs
What can you do in a light industrial unit?
Light industrial unit differs from a traditional or more ‘heavy’ industrial unit in that it is primarily designed for manufacturing, packaging, repair, and assembly procedures.
What is an industrial lease?
An industrial real estate lease is a rental arrangement between a firm (tenant) and a commercial space owner (landlord). In addition to the base rent, they frequently contain costs such as common area maintenance (CAM) fees, utilities, maintenance and repair costs, and so on.
Can I sell from an industrial unit?
An industrial unit is a good option to sell things without having to invest in a more formal brick and mortar location because the rent and other overheads are substantially lower than a regular shop.
