Cheaper office space for SME's

There is a growing trend of businesses opting to move away from office parks into residential areas.   This may seem unconventional, but there are certain financial benefits for SME’s to make this move.

“With the by-laws considered, yes, buying or renting office space in a residential area makes financial sense”, says Attie Anderson, Head of FNB Commercial Property Finance.

Anderson takes a look at some key considerations that a business has to take into account when deciding to buy or rent office space in a residential area.

What must one consider in terms of where to buy?

The biggest consideration is access to the property.  Are the access and exit points adequate for the expected visitors to the premises? Is the site in close proximity to major routes? How will peak hour traffic affect access to the premises?

What are the stumbling blocks with owning commercial property in a residential space?

Residential areas are prone to traffic stacking during peak times, especially close to schools and residents may complain about the rate of activity.  In residential areas, sufficient parking space may also be limited.

What are the legislative considerations?

One needs to ensure that the zoning of the property caters for the specific business to be operated thereon.   The zoning of the property attaches to the property itself, and not to the owner thereof. In some cases you may require special permission from the local authority (“consent use”). Consent use is normally granted to the owner of the property, with certain strict conditions to be adhered to. This consent use may not be transferred to subsequent owners (consent use therefore attaches to the owner, not the property).

How are rates and taxes calculated?

Rates are calculated in accordance with the rates policy of the Council in which jurisdiction the property is situated.  Properties with business zoning are calculated at a higher tariff than residential properties.  The valuation of the property is normally multiplied by the tariff and divided by 12 to obtain the monthly rates applicable to that property.  The valuation of the property will normally differ from area to area.

Is it good to rent or own this type of property?

It is always better to own property in a good area as it will appreciate in value and as you grow it might be an asset that you will either rent out or sell at a reasonable profit.

What types of businesses are best suited for residential areas?

A look at the sector suggests that professionals such as doctors, dentists, accountants and real estate agents seem to move more to residential areas.  Other industries that seem to benefit are beauty salons, printing franchises and smaller service providers such as plumbers and electricians.

“The decision to go into a residential area must be one that looks at the long term strategy of the business and its growth prospects, but on the whole, it is clear that there is merit in exploring office space in a residential area” concludes Anderson.