Factors Affecting Levels of Commercial Rent
August 19, 2020 No Comments

Factors Affecting Levels of Commercial Rent

Posted by Maunder Taylor in Blog

The commercial property market can be a highly complex one, particularly for first-time investors who are looking for a reasonable rate of return but have little experience of the sector.

Maunder Taylor, who specialise in commercial lettings in London, with a focus on the areas in and around Barnet and Potters Bar, look at some of the key factors which help to determine the levels of rent charged on business premises.

Local Demand and Supply

The level of rent for any commercial property is determined by what is known as the ‘open market rental value’, which is what landlords could reasonably expect to receive from another leaseholder (or ‘third party’) if the terms of the rental agreement were the same. This in turn will be affected by what other landlords are charging for similar premises in the area – local demand and supply.

Every neighbourhood has its own characteristics. Shopping centres with a high footfall or which are easy to get to will mean landlords can charge higher rents for stores and restaurants than out-of-town premises which are more difficult to find. Office spaces can attract high rents if they benefit from good transport links so that they are easy for staff to get to.

Internal Facilities

Premises which have been fully fitted out obviously mean higher rents, particularly if the work has been completed recently. In recent years, having high-quality IT infrastructure in place has become increasingly important for tenants. Another factor is floorspace: the larger the floorspace, the more tenants will pay, as this means increased volume of workstations and other facilities, such as breakout spaces and meeting rooms.

If the premises have more than one floor, then offices on upper storeys typically attract higher rents, particularly if they offer impressive panoramic views. Plenty of natural light is another important factor, as this has health benefits for employees as well as helping businesses reduce the size of their fuel bills.

What the Lease’s Usage Allows

The open market rental value assumes that the premises are being used for the most valuable use permitted by the terms of the lease. If the building can be used as an office, then it can attract a higher rent – even if it is currently just being used for storage. Any contraventions of the terms of what the lease permits can result in the landlord or tenant being held in breach of the lease, or of local planning laws, and either could face legal action.

Does it Include Rates?

Business rates are distinct from rent, and they are charged on any property which is being used for commercial purposes. The occupier of premises has a legal obligation to pay the rates bill – however, sometimes the landlord will opt to include this as part of the rent.

And What Doesn’t Affect Rent Levels…

Any improvements that are made to the property, either by the tenant or the landlord, won’t result in any changes in the levels of rent. What matters is the condition of the premises at the time the lease was signed. However, the rent will usually be reflected in what is charged after the next rent review, which typically in the UK takes place once every three to five years.

Commercial Rents and the Coronavirus

The Government relief schemes in respect outbreak of coronavirus has prohibited landlord from seeking early termination of any commercial tenancies, unless this is done by mutual agreement between the tenant and the landlord. The Government has ruled that a commercial landlord is not entitled to enforce a forfeiture for any non-payment of rent until 30th September 2020, and this may be extended further.

Commercial Lettings in London from Maunder Taylor

Maunder Taylor have a large portfolio of commercial managements in North London on our books. We specialise in offering commercial property to let in Barnet, Potters Bar and the surrounding area. We can also advise on rent reviews and lease renewals, following a thorough examination of the existing lease and comprehensive research of the premises and the surrounding area. We also assist with negotiations and, in the event of a dispute, we are qualified to act as Expert Witness. If you would like to know more, then follow this link.