In addition to the base rent, renting a retail space can quickly add 30 to 60 percent in additional costs. Think of service charges, insurance, municipal levies, fit-out costs, and legal fees for the lease agreement. For starting retailers, this is one of the most underestimated parts of the business plan. This article answers the most frequently asked questions about all costs beyond the rent, so you can get started with a realistic budget.
What are service charges and what do they cover?
Service charges are costs that a landlord passes on to the tenant for services and facilities associated with the property. In retail spaces in shopping centres or multi-tenant buildings, this typically involves an amount on top of the base rent, settled monthly or quarterly. The amount varies considerably depending on the location and type of property.
Service charges for retail space typically include the following items:
- Management and administration of the building or shopping centre
- Cleaning of common areas, facades, and sanitary facilities
- Security and CCTV surveillance
- Marketing and promotional activities of the shopping centre
- Maintenance of installations such as lifts, escalators, and climate control
- Energy for common areas and lighting of the centre
Service charges for retail spaces in shopping centres can amount to 15 to 25 percent of the base rent. For standalone retail units on a high street, service charges are often much lower or even absent. When evaluating a lease proposal, it is essential to always calculate the total rental cost: base rent plus service charges plus VAT. A retail specialist during lease negotiations can assess whether the requested service charges are in line with the market.
How much are the one-off start-up costs when renting a retail space?
The one-off start-up costs when renting a retail space typically range between two and six months of base rent, depending on the location, type of property, and the terms agreed in the contract. These costs are separate from the fit-out and arise immediately upon signing the lease agreement.
The main one-off costs are:
- Security deposit: Almost always required. Landlords typically ask for two to three months’ rent as security. For larger or prime locations, this can rise to six months.
- First rent instalment in advance: Often the first month or first quarter is paid directly at the start of the lease.
- Agent fees: If you engage an agent on your behalf as a tenant, costs are involved. At KroesePaternotte, the costs for tenant representation depend on the assignment.
- Legal fees: A lawyer or legal adviser who reviews the lease agreement typically charges a few hundred to a few thousand euros, depending on the complexity.
- Notary fees: Only relevant if the contract needs to be formally notarised, which is sometimes required for long-term leases.
What fixed monthly costs come on top of the rent?
In addition to the rent, as a retailer you pay a range of fixed costs every month that are directly linked to the retail space. The most important recurring cost items are service charges, VAT on the rent, energy, municipal levies, and insurance.
An overview of the most common monthly additional costs when renting retail space:
- VAT: Rent of retail space is in most cases subject to 21 percent VAT. If you are VAT-registered, you can reclaim this, but that requires a so-called option for taxed letting in the contract.
- Energy: Electricity, gas, and water are rarely included in the rent. Depending on the property and your activities, energy costs can be considerable.
- Municipal levies: Think of property tax (OZB) for occupants, sewerage charges, and waste disposal levies. Who bears these costs is stated in the lease agreement.
- Insurance: Business insurance, contents insurance, and liability insurance are mandatory or strongly recommended for most retailers.
- Shopping centre contribution: In shopping centres, you sometimes pay a separate contribution for collective marketing or a retailers’ association.
What does fitting out and renovating a retail space cost?
The fit-out and renovation costs of a retail space vary considerably, but on average you should budget 500 to 1,500 euros per square metre for a complete refurbishment. A simple basic fit-out for a smaller shop can be cheaper, while a premium retail concept or a larger space can quickly cost tens of thousands of euros.
The main cost items for the fit-out are:
- Structural alterations: Floors, walls, ceilings, lighting, and electrical work. This is often the largest cost item.
- Shopfitting and furniture: Shelving, counters, display cases, checkout setup, and storage solutions.
- Branding and signage: Facade advertising, window display, and wayfinding.
- Point-of-sale system and technology: Payment terminals, POS software, security systems, and possibly Wi-Fi infrastructure.
- Permits: For renovations or facade modifications, a planning permit is sometimes required, which involves additional costs and lead time.
Please note: many landlords offer a rent-free period with a new lease to allow the fit-out to be completed. How long this period lasts depends on the negotiations. An experienced party such as KroesePaternotte can include this type of condition in the negotiation.
Which hidden costs are most often overlooked?
The most commonly overlooked costs when renting a retail space are rent indexation, reinstatement costs upon departure, hidden clauses in the lease agreement, and the VAT structure. These items only come to light once the contract has already been signed or when vacating the premises.
Specific cost items that many entrepreneurs pay attention to too late:
- Rent indexation: Most lease agreements contain an annual indexation clause based on the consumer price index (CPI). Over a term of five years, this can significantly increase the rental burden.
- Reinstatement costs: At the end of the lease period, the space must generally be returned to its original condition. Alterations you have made yourself sometimes need to be reversed.
- Costs for renewal or termination: Break options and notice periods are legally complex. A misinterpretation can result in months of additional rent that you are obliged to pay.
- Non-reclaimable VAT: If the lease agreement does not include a VAT option but you are VAT-registered, or vice versa, this can lead to unexpected tax liabilities.
- Costs for modifications to installations: Climate control, sprinkler systems, or fire safety requirements from the municipality may require additional investments not included in the rent.
Having the lease agreement reviewed by a specialist prevents this type of clause from causing unpleasant surprises later on.
How do you calculate the total budget for renting a retail space?
You calculate the total budget for renting a retail space by multiplying the base rent by the lease term and adding all one-off start-up costs, monthly fixed costs, and fit-out costs. For the first year, budget for a total amount of at least one and a half to two times the annual base rent.
A practical calculation method for the first year:
- Annual rental cost: Base rent plus service charges plus VAT, multiplied by twelve months.
- Start-up costs: Security deposit, first rent instalment in advance, and any legal or agent fees.
- Fit-out costs: Estimate based on the floor area and the desired concept.
- Monthly fixed costs: Energy, insurance, municipal levies, and other operating costs, multiplied by twelve.
- Buffer for unforeseen costs: Budget at least ten percent of the total as a reserve.
A concrete example: suppose you rent a retail space of 80 square metres for 2,000 euros per month in base rent. The service charges amount to 400 euros per month. The security deposit is three months’ rent (6,000 euros). The fit-out costs 60,000 euros. For the first year, you can quickly arrive at a total investment of well over 90,000 euros, excluding day-to-day operating costs.
It pays to gain a thorough understanding in advance of what market-rate rents are for the location you have in mind. KroesePaternotte holds lease transaction data going back to 1984 and covering the entire Dutch retail market. This makes it possible to provide a well-founded assessment, per street, per city, and per location type, of whether a requested rent is realistic. View the current retail space listings or get in touch directly for a conversation about your specific situation.
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