Gareth Chadwick asks a panel of entrepreneurs and experts for their views.

It is a sad fact that for many entrepreneurs the building they toil away in is worth more than their business itself.
It is not surprising, then, that an increasing number of business owners look to buy their own commercial premises, particularly when inflation is low and borrowing is cheap, as it has been for the past four or five years.

“Many businesses are choosing to buy their property, rather than lease, and there are no real signs of this trend slowing down,” says David Laws, senior associate at Manchester surveyors Edwards and Company.

“There are a number of favourable factors driving this, not least the comparatively low cost of borrowing, combined with a fall in confidence in the stock market and worries about pensions.”

Aidan Carr, senior partner at Manchester law firm Rowlands, would no doubt agree. Last year Rowlands bought the building it occupies on York Street in central Manchester for £4.7 million, through a mix of partnership funds and bank finance. It had already been a tenant in the 18,000 sq ft building for seven years, and when Carr heard in 2005 that the owners, Deutsche Bank, were looking to sell, he didn’t hesitate.

“There are two schools of thought on acquiring commercial premises. Some businesses feel that it is wiser not to tie up their capital in bricks and mortar, whereas we think property provides a good long-term investment. Businesses that own their own buildings tend to take more pride in their appearance, while tenants have to consider the liabilities of their lease and the obligations they are under to make repairs.

“All our properties have proved to be good investments, particularly the Manchester office which is at the top of Spring Gardens. The whole area is currently under redevelopment and will be transformed into a pedestrian area, with European-style street restaurants and cafés,” says Carr.

Ian Pollitt, managing director of luxury travel company Carrier, is an entrepreneur who is convinced that owning your own business premises is the only sensible option. Pollitt and his wife Carole founded Carrier 27 years ago above their travel agency in Alderley Edge. For about 20 of those years, the business was based in a ‘rabbit-warren’ of offices above the shop. But by the end of the century it was in urgent need of more space. The question of whether to buy or to lease, though, was never even considered.

“I only ever thought about buying. I don’t see the point in renting somewhere. It’s three things really. One, we are more in charge of our own destiny; two, it is an investment and, three, depending on the size of the building and whether you let any out, it can be an income,” says Pollitt.

His first property was a new build in Wilmslow. He spent £2.1 million buying a derelict row of shops, knocking them down and building a three-storey office block. But by 2005, the rapid growth of the company and the need for more parking space pushed him into the property market again. After several months of searching he found a three-storey, 34,500 sq ft building at Cheadle Royal business park. It was previously the home of Independent Insurance and he bought it from the receivers in December 2005 for £6 million, including 200 parking spaces.

Carrier and its 95 staff now takes up the top floor, while twothirds of the ground floor is let and the first floor is currently empty. When fully let, Pollitt estimates it will bring in around £300,000 per year – and be worth up to £9 million.
He says it has been a huge success and is clearly delighted with the purchase. However, the experience has underlined some of the common drawbacks of buying as opposed to renting.

Rupert Barron, agency partner at property consultants Donaldsons, says that ownermanagers, “If they are buying second hand, often underestimate the cost of fitting out the building to their own specification, particularly in terms of machinery and equipment and technology. If you are letting part of it out, there’s also the worry about finding tenants, and then when you’ve found them, the hassle of becoming a landlord and being responsible for anything that goes wrong.”

These are all scenarios that Pollitt faced. Buying the building off the receivers ensured that he got a good price – cheaper than a new build – but, because the building is eight years old and had been empty for the previous two-and-a-half, he spent another £750,000 kitting it out. It then took him a year to find his first tenant and, when he did, he realised that he didn’t want to spend his time sorting out his tenant’s property problems, so he ended up bringing in a property management company to look after it.

“The costs of refurbishment took me by surprise,” says Pollitt. “That’s the danger when you buy something, particularly something old, as opposed to a new build, where everything is still under guarantee. In future, I’d make sure we got it completely checked out by a property specialist first. That was a steep learning curve for us.”

As Donaldson’s Barron points out, despite the obvious investment attraction, buying your own premises can sometimes be a hindrance on business development and a drain on limited resources, particularly for smaller businesses. A building is a longterm investment, but it is difficult for any business to know what lies six months ahead, never mind six years. What suits perfectly now may be hopelessly too small – or too big – a little further down the line.

If you are very successful and outgrow your premises, you’ll need to find something new and decide what to do with the old – a nice problem to have but a problem nonetheless. But if things don’t go so well, you could find yourself with a building that is too big, too expensive and which you can’t get rid of.

“You only have to look at what happened in several of the South Manchester business parks in the early 2000s. During the dotcom boom, they were the place to be, but then the bubble burst and for the next five years it was a real struggle to sell or lease anything there. That caused quite a few problems which have only recently been overcome,” says Barron.

The flexibility afforded by leased premises is the main reason Ben Hatton, managing director of Liverpool web company Rippleffect, opted to rent 4,000 sq ft on Liverpool Science Park rather than buying a building. Rippleffect only started trading seven-and-a-half years ago and is already in its fourth premises, which Hatton and his team of 30 moved in to in October 2006.

He says that each time they needed to move, he considered buying somewhere, but each time decided against it.

“What would we buy? Should we get something twice as big as we are now and hope it lasts five years? Or something four times as big and let some of it out on short-term leases? And what about parking, would we have to look outside the city centre to get the parking we need, which means we’d be compromising on location?” says Hatton.

“It is very hard to find decent city centre premises built to the specification we have here and with parking at an affordable level. And we need the flexibility that renting gives us. We’ve grown quite quickly to date, but new media can be very fickle. It’s stop and start. So we need to be able to react to that. Plus I didn’t want to become a bloody landlord to anybody else.”

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