Doing the math of renting a business property
By Edith Tay
/ PropertyBank, The Edge Property |
As a global business hub, Singapore has attracted many companies to set up here. Our pro-business environment has also encouraged foreign and local entrepreneurs to set up their business here. Manpower and real estate costs continue to be top concerns of many businesses. Most businesses do not plan for their real estate costs at the beginning. A company is set up when the entrepreneur is ready with a market, a product or even an idea. Chances are that they do not work out their real estate sums until a later stage. Rarely does one realise the importance of good planning to reduce real estate expense, and the amount of time needed to ensure a smooth process.
A business may start in a home-office environment, gradually moving on to co-working space / serviced office, and to an office space. For F&B and retail trade, the location and cost of business are most critical to their success.
Types of Business Properties and the Relevant Costs
Virtual Office – Co-working – Serviced Office
With this digital age, one can work anywhere from homes to cafes. However, there is a growing trend to work in communities, hence the birth of the word “Co-Working”. (see Table 1 for a comparison of office options).
Table 1: Comparison of office options
While most start-ups opt a virtual office / co-working / serviced office, depending on the package of the provider, one may have to pay for internet, photo-copying, IT trouble-shooting. Also, one has to review and compare this option and move to a conventional office when they hit 4 pax and above. Some conventional office may save some costs in long run.
Office
Renting a first office can be exciting to a business owner, as one may start to dream the team members working in synergy in the office. Very often, there are expectations of the view of the office, to the direction (for fengshui reasons), the amenities, the accessibility of public transport, availability of car-parking lots, the air-con hours and whether the office is fibre ready. Some companies take a step further to choose only offices which are with greenmark, as this is also part of their corporate social responsibilities.
Most offices come with standard fittings of cement floor or raised floor, suspended ceiling, standard fire sprinkler and protection system, central or split unit air-con.
Other specifications such as the main door (some prefer glass), fibre optic readiness, etc, can make a marked difference when it comes to renovation (see Table 2 for leasing information and costs).
Table 2: Leasing information and costs
The cost of fitting out works depend on the floor area, the layout and technical requirements. The categories are : $40 to $60 psf for low range budget, $70 to $100 for mid-range budget and above $100 for high end budget.
F&B or Retail
Most F&B or Retailers may take over existing units to renovate to suit their business. Some new buildings may state F&B provision for the units, however, the tenant has to bear cost of the exhaust and grease trap.
There are various types of spaces suitable for F&B or Retail. These can range from shopping malls, shophouses, HDB shops, ground floor shops of mixed developments, retail units within an office building, or amenities within a business park or industrial estate. The rental can vary for these types of spaces and the locations. (see Table 3)
Table 3: Rental considerations for F&B or retail space
It may be important to assess the options using traffic per square foot, revenue per square foot and so on. When a business owner makes a good decision on the business’s location, the optimum size and has done the mathematics of the real estate costs, they are on the road to success. Beyond mathematics, a business’s location also affects the branding of the company and impacts on its hiring of people.
Just like financial planning, each company is at different stage of their business life cycle. And through this journey, they make different real estate decisions. It pays to have a real estate partner who is not just doing the rental transaction but seeing the needs through the businesses’ eyes. Thus, real estate decision making is part of the big business plan.
This article appeared in The Edge Property Pullout of Issue 686 (July 20) of The Edge Singapore.
Edith Tay is executive director of PropertyBank Pte Ltd. The views expressed here are her own.
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