BUY OR RENT COMMERCIAL PREMISES?
After all, Estonians have faith in real estate. Ownership is preferred to renting and, if possible, sales offers are sought after. This is mostly the case for residential real estate, but what about commercial real estate?
Rapidly growing companies are generally not looking for sales deals. Flexibility and the opportunity to operate on a much larger commercial space in a few years are more important to them than owning property.
Owning real estate comes with certain limitations and commitments. Even if the business space is new and it does not involve a significant maintenance burden, money will be stuck in the property, surface solutions must be thought out and one’s finger must be kept on the pulse when implementing the space solution. Someone on the team has to deal with real estate. A vital company “spins” money in its daily business much faster than the savings from owning real estate could ever recover. Therefore, a large part of the market is rather full of business space rental offers.
However, when considering whether to buy or rent business space, consider three aspects: expansion plans, the need to possess real estate and financial capability.
Expansion plans
Whether the decision is to buy or rent commercial space, it is guaranteed that one will be bound to the selected commercial space for at least 3-5 years. Relocation is not anyone’s hobby and therefore solutions are being sought where moving should be done as infrequently as possible. The ideal area is one where you don’t have to relocate anymore, but it is possible to expand, i.e. if you are looking for a commercial space or a business building for a company, the best option would be if the premises also had a growth reserve.
The growth reserve may be in the form of the construction volume on the plot, which will not be developed immediately and which will remain an option for the future. Another good option for growth is a commercial space next door in the same building that is used by another company. If it is necessary to expand, the space used by the company will be increased at the expense of the neighbour – by buying out or renting the adjacent premises, depending on the opportunities offered.
In case of new developments, lease agreements are generally concluded for a fixed period of five years. After the expiry of the term, it is possible to extend the lease agreement on the basis of a mutual agreement. If the landlord does not want to extend the agreement or demands an unreasonable increase in the rental price, the tenant will be forced to relocate. From here we come to the second point.
The need to possess real estate
Due to the desire not to let anyone else influence the strategic decisions of one’s own company, opportunities are being looked for owning commercial space.
For comparison, being in a rented space, the renovation solutions have to be coordinated with the owner and it may happen that not everything is allowed to be changed. Reconstructions and improvements within the premises are left behind by the tenant at the end of the lease period, i.e. large sums are often invested in foreign real estate. If the company’s growth plans are in place and it is known that a larger area will not be needed for, let’s say, five or ten years, it is reasonable to enter into a lease agreement of the appropriate length to mitigate the risks of leasing.
Some development projects have both solutions – the possibility to rent commercial space and the opportunity to purchase spaces. According to the needs and possibilities of the company, one is able to choose a suitable option.
Financial capability
If there are free assets in the balance sheet that are not exploited in the main activity, it is wise to direct them to real estate. Although productivity in the core business is likely to be higher, in the case of real estate, besides saving on rent, the advantage is the increment in value that has worked for the owner’s benefit over the years.
Owning commercial space is frequently also a desire for companies that do not possess free funds in their account. If the economic indicators are strong, then this is not a problem and the bank will come to their rescue. If the economic indicators are not strong, there may occur difficulties in both purchasing and renting commercial space. It is an old truth that the landlord is doing well when the tenant is doing well, and therefore the tenant’s financial results are being verified upon concluding the agreement. No landlord wants to enter into an agreement with the impression that in order to receive rent, they must start switching off electricity on the commercial premises.
Summary
There is no single truth as to which is better. Businesses have different needs and opportunities. It is worthwhile for fast-growing companies to rent commercial space and search for ways to grow in real estate on the same or nearby space as easily as possible. In companies with a developed business model, where unexpected major changes (read: rapid growth) are not expected in the near future, it would be rational to purchase real estate. Here, the best option is if the purchased real estate has the potential for future expansion as well – either at the expense of the neighbours or with the extension of the building.
In the business real estate market, premises are generally offered for rent. At the same time, the Tähetorni Tehnopark, which will be built in West Tallinn, offers commercial premises for both rent and sale, and in the event of rent, also the option to purchase them is provided.
There are 24 plots with construction rights in the technology park, therefore an expansion in the future is not a problem. The park’s developer (Tähetorni Tehnopark OÜ) is an associate of OÜ Favorte with a history of 25 years and plans to develop the technology park in three stages, which gives companies that have rented / purchased commercial space in the first stage to find a larger and more appropriate commercial space later on.
Many companies do not offer internal expansion within the technology park, but in Tähetorni Tehnopark, it is also possible in the limits of the same building. In Härgmäe 21 and 22 commercial buildings, premises are sold by parts of the building.
OVERVIEW OF BUSINESS PARKS PUBLISHED IN EESTI EKSPRESS SUMMARISED THE POSSIBILITIES OF THE TÄHETORNI TECHNOLOGY PARK
(01 June 2018) – Overview of business parks
Tähetorni Tehnopark with its impressive 20.5 ha development area is suitable for production, warehousing, logistics and trade companies.
According to the two established detailed plans, the technology park has 26 plots and the construction volume provided in the detailed plans is up to 150,000 m². Nearby is one of the largest shopping centres in northern Estonia, Rocca Al Mare, Tehnopol of TalTech University and the industrial district of Laki and Mustjõe streets. The location by the busy Paldiski Road in the Haabersti district of West Tallinn ensures a good connection with the city centre, which in turn is improved by the reconstruction of the multi-level intersection of Haabersti. A traffic-light intersection will be built to gain access to the technology park, which will ensure better access and visibility. What is more, the city is preparing a reconstruction project for Tähetorni Street.
“Communications and access roads of the first stage are being built in the Tähetorni Tehnopark,” comments Kristen Tamm, consultant at Uus Maa Property Advisors. “The first stock-office building for rent will be completed this year.”
Adjacent residential areas under construction with a nearby park quickly dispel the image of the technology park as a complex of massive buildings and complex of constructions with large smoking chimneys. The detailed plan, together with the strong integration of the city, creates favourable conditions for the construction of commercial buildings of multiple floors on top of the warehouse premises.
Photo by: Overview of the business parks
ARCHITECTURALLY COHERENT, WITH FLEXIBLE OPTIONS AND DIVERSIFIED
The concept of flexibility has become more and more a cliché that needs to be justified, but this is exactly what Tähetorni Tehnopark is able to offer thanks to the developer’s vision and the detailed plan.
Tähetorni Tehnopark enables the sale of business premises both by entire buildings and as separate parts of the building. As a rule, the production premises of a warehouse are rented out either by buildings or spaces, but Tähetorni Tehnopark also offers the chance to purchase them, which is not usual in business real estate or for other technology parks. The first preference of developers or building owners has always been to own an entire building at once or to sell the entire building – purely for the convenience of management and arrangement of activities. Here, Tähetorni Tehnopark has an important advantage in terms of its wider possibilities: since the developer has a lot of construction rights and volume in terms of plots, it allows it to be flexible according to the company’s wishes. Rent a 400-square-metre space or instead, purchase a 7,000-square-metre building – in Tähetorni Tehnopark it is possible.
Moreover, in such cases, a purchase option, i.e. the possibility to buy out the space after renting the premises for a specific period on agreed terms, is time and again not provided. Here, too, Tähetorni Tehnopark has an enormous upper hand to meet the companies halfway – if the company has a wish rent the premises, accompanied by the terms of the lease agreement, the terms and logic of purchasing, i.e. the possibility to exercise the purchase option, may be agreed upon.
Rental prices start at 5.2 € / m², being very competitive regardless of the conditions of the Tähetorni Tehnopark and the buildings being new. The assumption that older industrial parks will always be able to offer better prices is certainly not true.
ENERGY EFFICIENCY AND SUBSTANTIAL INFRASTRUCTURE OPPORTUNITIES
The electric power is nearly 3,000 amps. Due to energy efficiency, ancillary costs are also reasonable for customers who need to transport goods back and forth several times a day.
A high-volume drinking and utility water pressure booster pumping unit will be installed in the technology park, which will enable greater independence from the pressures of the Tallinn’s city network.
Tähetorni Tehnopark OÜ is an affiliate of Favorte OÜ, which develops both Ringtee Stock and Tähetorni Tehnopark.
Favorte is a company founded in 1993 upon Estonian capital, operating in Estonia, which considers its mission to be the creation of a modern and innovative living and working environment that takes into account human needs.
4 € FOR WAREHOUSE AND 6 € FOR OFFICE SPACE – TENANTS WILL CHOOSE THE SIZE OF THE UNIT
Ringtee Stock is a warehouse-office-representative office type of business building with logistically good access by the Tallinn roundabout. Its location by the roundabout allows good access to the Tartu and St. Petersburg highways and to the city of Tallinn via Suur-Sõjamäe.
The energy efficiency of the building is characterized by energy label B, which means very low ancillary costs. The space plans are well thought out and every square metre built in the facilities is utilised in an effective manner. It is possible to rent a warehouse or production space of a suitable size in the building. If necessary, additional office space may be rented, making it a great built-to-suit solution for the tenant.
www.ringteestock.ee
