Property in the UK: commercial and industrial

An Expert's View about Real Estate Investment in the United Kingdom

Posted on: 30 Aug 2010

This fact sheet summarises the key issues in obtaining commercial and industrial property in the UK.

PROPERTY: COMMERCIAL AND INDUSTRIAL This information sheet summarises the key issues in obtaining commercial and industrial property in the UK. The factors covered are: 1. Procurement options (leasehold or freehold) 2. Property options 3. Timescale for obtaining property 4. Agents fees 5. Legal issues 6. Business rates 7. Obtaining planning permission in the UK 8. Further information The UK has one of the most open and dynamic commercial property markets in Europe, with companies benefiting from a wide range of property options, stable rents and flexible lease arrangements. 1. PROCUREMENT OPTIONS (LEASEHOLD OR FREEHOLD) For companies setting up in the UK, the key property decision is whether to rent premises (known as ?leasehold?) or to buy premises (known as ?freehold?). Importantly, there are no restrictions on overseas companies either buying or renting property in the UK. a) Leasehold Companies can either rent premises that are already available or enter into what is known as a ?pre-let? (an agreement with a developer to lease premises before construction is completed, enabling prospective tenants to specify the design, layout and fittings of the building). Commercial leases typically run for 15 years with reviews every five years, although shorter terms are becoming more common. It may be possible to negotiate ?break clauses? at set times throughout the lease (enabling the occupier to serve notice to vacate the premises). The majority of leases on commercial premises are let on ?full repairing and insuring terms?, which places the responsibility and costs for all upkeep, decoration and repairs onto the tenant. In addition, most leases over three years in length will have a provision to increase the rent in line with the market conditions at pre-determined points throughout the lease. The standard clause allows for ?upwards- only? rent reviews at five-yearly intervals (this means that, should the market rent rise, so does the rent payable). Businesses selecting the leasehold property option must also pay ?stamp duty land tax?, which is calculated using the ?net present value? of all rental payments due over the term of the lease. For more information (including an online stamp duty calculator), please see: www.hmrc.gov.uk/so/new-sdlt-calculators.htm For information on legal issues for a business tenant, please see: www.communities.gov.uk/citiesandregions/propertyissues/businesstena nciesguidance/ b) Freehold Buying property in the UK is a straightforward process and, importantly, there are no restrictions on overseas companies. In addition to the price of the property, purchasers must also pay stamp duty land tax based on both the size of the transaction and the location of the property. For more information, please see: www.hmrc.gov.uk/so/new-sdlt-calculators.htm 2. PROPERTY OPTIONS There are various property options available to businesses throughout the UK (including leased offices, serviced offices, science parks, industrial properties and land for development). a) Leased office options There is a wide range of leased office options in the UK, from standard office accommodation to leading-edge headquarters buildings. Typical rental costs for offices vary across the UK (for further information, please see Appendix A). The basic rent on a conventional office lease usually ranges from £130 to £500 per square metre per annum (approximately £13 to £50 per square foot per annum) depending on location and facilities. Annual rents are typically subject to upwards-only rent reviews at the end of each fifth year. In addition to annual rental charges, service charges are also typically charged at around £40 to £80 per square metre per annum (approximately £4 to £8 per square foot per annum). The service charge is levied by the building owner or their agent, and includes the basic running costs of the building such as lift maintenance and cleaning of communal areas. b) Serviced office options Serviced offices are available in all major towns and cities across the UK, and range in size from a single desk through to large offices. Companies can usually move into a new serviced office within a week. The key advantages of serviced offices are that leases can be as short as one month and that all costs are combined into one monthly payment. Costs are typically based on the number of workstations and can typically range from £200 to more than £1,000 per workstation per month depending on the location and the range of services included. More information on both the cost and availability of serviced offices can be found at: www.instantoffices.co.uk or www.mwbex.com or www.regus.co.uk c) Science parks There are approximately 100 science parks in the UK which provide commercial property options to support the start-up and development of knowledge-based businesses. Most science parks have formal links with universities, institutes and research organisations. For more information on science parks, please see: www.ukspa.org.uk or the UK Trade & Investment information sheet entitled ?Science Parks and Business Incubators in the UK.? d) Industrial and distribution property options There is a wide choice of industrial and distribution properties across the UK, with over 23.9 million square metres of space available (Source: King Sturge, UK Industrial & Distribution Floor Space Today, March 2010). The average rentals on new industrial and distribution units typically range from around £50 to £160 per square metre per annum (approximately £5 to £16 per square foot per annum) depending on location. Please see Appendix B for details of typical industrial rents across the UK. e) Land options ? development sites For businesses intending to build their own premises, the UK offers a wide variety of greenfield and brownfield sites in every region (please see Appendix C for details of typical industrial land values across the UK). 3. TIMESCALE FOR OBTAINING PROPERTY Although it is possible to occupy a new building within a few weeks, it is prudent to allow, on average, three to four months from initialising the property search to taking occupation of an existing property. This includes time for considering location options, identifying buildings or sites, negotiating leasehold or freehold terms and drafting appropriate legal documentation. 4. AGENTS FEES A property agent can assist in both the property search and in negotiating the main terms of the lease or purchase. Agents? fees for procuring a leasehold property are approximately 10 per cent of one year?s rental costs. Agents? fees for purchasing freehold properties are typically around 1 per cent of the purchase price, although this is subject to individual negotiation and confirmation of the full range of services required. For more information on property agents and surveyors in the UK, please see: www.ricsfirms.co.uk/ 5. LEGAL ISSUES Companies purchasing or leasing property should expect to pay legal fees (which incorporate conveyancing fees), costs for local authority searches and bank transfer fees. An experienced property solicitor is typically necessary to assist in the preparation of all required legal documentation. For contact details of property solicitors in the UK, including a searchable database, please see: www.lawsociety.org.uk 6. BUSINESS RATES Business rates are a property tax that business occupiers pay towards the costs of local government services. Business rates typically range from £20 to £130 per square metre (approximately £2 to £13 per square foot). The specific level of business rates payable is based on a professional assessment of the annual rent of each individual property (as if it were available to let on the open market). The most recent rating list came into effect on 1 April 2010 and is based on the valuation date of 1 April 2008 (all properties are valued from the same date to ensure that they are assessed on a level basis). Details of business rates in England/Wales, Northern Ireland and Scotland can be found at: ? England and Wales: www.voa.gov.uk ? Northern Ireland: www.lpsni.gov.uk/index.htm ? Scotland: www.scotland.gov.uk/Topics/Government/local- government/17999/11199 For additional information, please see the UK Trade & Investment information sheet entitled ?Business and Domestic Charges Payable to Local Authorities?. 7. OBTAINING PLANNING PERMISSION IN THE UK UK planning regulations are administered by the local authority covering the area in which the particular building or site is located. Prior to making any commitments to amend an existing building, construct a new building or change the usage of a building, businesses must make contact with their local authority planning department (for a full list of commercial property usage classes, please see Appendix D). The UK planning system is different to the planning systems operating in many other European Union countries. For example: ? The UK planning system is discretionary and therefore more flexible. The planning system within many European Union countries is often largely based on rigid development codes or zones (for example, the Plan Local d?Urbanisme in France, the Bebauungsplan in Germany or the Bestemmingsplan in the Netherlands). ? The UK has a clear process that typically provides planning decisions more swiftly than in many other European Union countries. ? The appeals system within the UK also follows a clear process. However, in many European Union countries, the appeals process must be undertaken through the courts. Further details about the UK planning system and a guide for businesses on obtaining planning permission can be found at: www.planningportal.gov.uk/ or www.communities.gov.uk/planningandbuilding/planning/ 8. FURTHER INFORMATION This information sheet was updated in March 2010. As information changes from time to time, please contact the organisations listed or UK Trade & Investment to confirm any item that you intend to rely on. This information sheet was produced by the Marketing Group of: UK Trade & Investment 9th Floor Kingsgate House 66-74 Victoria Street London SW1E 6SW Tel: +44 (0)20 7215 4957 Email: enquiries@uktradeinvest.gov.uk Website: www.uktradeinvest.gov.uk APPENDIX A ? UK office rental costs Typical office rental costs Location Prime office rental costs* 2 (£ per m per annum) North Bradford £129.17 Leeds £290.64 Liverpool £220.67 Manchester £301.40 Newcastle £215.29 Sheffield £199.14 Warrington £188.37 South Basingstoke £236.81 Bristol £204.52 Heathrow £279.87 London ? Canary Wharf £376.75 Plymouth £150.70 Swindon £182.99 Midlands and East of England Birmingham £301.40 Coventry £172.23 Northampton £166.85 Nottingham £193.22 Telford £129.17 Wales Cardiff £226.05 Swansea £156.08 Wrexham £118.41 Scotland Aberdeen £306.78 Edinburgh £306.78 Glasgow £306.78 *Does not include service charges Source: DTZ Research, 2009 APPENDIX B ? UK industrial rental costs Regional prime industrial rental costs 2 Area Prime Rent (£ per m per annum) Greater London Croydon £88.80 Heathrow £140.00 Park Royal £121.10 South East Dartford £80.70-£83.40 High Wycombe £91.50 Slough £121.10 East Anglia Norwich £51.13 Peterborough £53.82 South West Bristol £78.00 Plymouth £56.50 Swindon £59.20 East Midlands Derby £56.50 Leicester £59.20 Nottingham £61.90 West Midlands Birmingham £61.90 Black Country £53.80 Solihull £67.30 North West Liverpool £51.10 South Manchester £64.60 Trafford Park £67.30 Warrington £64.60 Yorkshire and the Humber Doncaster £53.80 Leeds £61.90 Hull £53.80 Regional prime industrial rental costs ? (continued) North East Newcastle ££51.10-£53.80 Sunderland £43.05 Stockton-on-Tees £37.70-£43.05 Wales Cardiff £55.00 Swansea £45.75 Wrexham/Deeside £48.40 Scotland Aberdeen £75.35 Glasgow £64.60 Edinburgh £67.30 Source: King Sturge, UK Industrial & Distribution Floorspace Today, March 2 2010 (assumes a minimum size of 1000m ) APPENDIX C ? UK industrial land values Industrial land values (typical) Location (£ per acre) (£ per hectare) North Bradford £190,206 £470,000 Leeds £218,535 £540,000 Liverpool £97,127 £240,000 Manchester £218,535 £540,000 Newcastle £78,915 £195,000 Sheffield £182,113 £450,000 Warrington £157,831 £390,000 Midlands Birmingham £323,756 £800,000 Black Country £174,019 £430,000 Northampton £151,760 £375,000 Telford £121,408 £300,000 South Basingstoke £655,605 £1,620,000 Bristol £275,192 £680,000 Exeter £323,756 £800,000 Plymouth £153,784 £380,000 Swindon £263,051 £650,000 Wales Cardiff £109,268 £270,000 Swansea £95,103 £235,000 Scotland Aberdeen £445,164 £1,100,000 Edinburgh £141,643 £350,000 Glasgow £149,737 £370,000 Source: Valuation Office Agency, 2009 APPENDIX D - Commercial property usage classes A1 Shops Shops, post offices, travel agents, hairdressers, funeral directors, dry cleaners. A2 Financial and professional services Banks, building societies, betting offices, and other financial and professional services. A3 Food and drink Pubs, restaurants, cafes and hot food take-aways. B1 Business Offices, research and development, light industry appropriate in a residential area. B2 General industrial B8 Storage and distribution Including open air storage. C1 Hotels Hotels, boarding and guest houses where no significant element of care is provided. C2 Residential institutions Residential care homes, hospitals, nursing homes, boarding schools, residential colleges and training centres. D1 Non-residential institutions Surgeries, nurseries, day centres, schools, art galleries, museums, libraries, halls and churches. D2 Assembly and leisure Cinemas, concert halls, bingo and dance halls, casinos, swimming baths, skating rinks, gymnasiums or sports arenas (except for motor sports, or where firearms are used). Source: DCLG, 2009
Posted: 30 August 2010