29 April 2019/ Guides

The Pros and Cons of Leasing vs. Buying Office Space

One of the first decisions you need to make before you find your business premises is whether to rent or take the plunge and buy. On the one hand, buying gives you the opportunity to invest for the future, while leasing tends to offer more flexibility. So what’s best for your business? This guide covers the important factors for and against the big property conundrum: buy or lease? – so you can decide on the most strategic route for your long- and short-term goals.

 

Equity or capital?

 

Tying your money into property can bring you serious value, but is it better to invest it or keep it free for the future?

Buying:

 

Buying your business premises opens up the opportunity to grow your money through investment. In theory, you should build equity over time from increased value. Although the market may experience some dips, over the longer term, these typically smooth themselves out. You may be able to use the equity to secure a loan to inject more cash into your business for growth. Some business owners use the equity to fund their retirement by either selling the property or getting bought out by their company when they come to leave.

Leasing:

 

Although equity gains are attractive, there is a benefit to keeping hold of your cash. Having freed-up capital makes it easier to grasp opportunities, and you may find it easier to secure a loan with cash to put down. Therefore, if new ventures are on the horizon for your business, leasing might suit you better.

Security or flexibility?

 

This is a huge question for business owners. Ideally, your commercial property will give you both – the security of knowing you’re based in one place for years to come with the chance to adapt the space to accommodate changes to the business. But this is difficult to find – and one that few properties for sale or lease will offer.

Buying:

 

For security, buying is usually your best bet. When you buy, you should be able to fix your mortgage interest rate and subsequently pay the same each month for a number of years. You will also benefit from the security of knowing you’ll be based in the same place for as long as you decide, which is a huge bonus to mature businesses that are nicely ticking over.

The downside to this security is the initial cost outlay, which may disrupt your business in the short-term. You may find it less demanding on your cash flow to lease while you build up the capital you need to buy. Of course, it is also important to calculate whether your company’s income is stable enough to cover the payments in the long term.

Leasing:

 

For start-ups and businesses looking to scale operations, flexibility is key. You may need to move somewhere bigger in a matter of months, and leasing gives you the chance to move quickly. If your company is small at the moment, you could share a space to reduce costs and look for somewhere bigger as and when you need it, which is only really possible when you lease. In fact, lots of start-ups benefit from being in shared spaces for networking opportunities, freelancers on the doorstep and the chance to learn from other business owners in close proximity.

The downside of leasing properties is the wavering ability of the rent charges. You may find the cost of rent goes up annually, which can squeeze your margins. Although you could move if the rent becomes too expensive, the costs of moving (such as higher staff hours, fees to move supplier contracts, cleaning charges and new furniture) might outweigh the benefits of the marginally lower payments elsewhere.

Economical or deluxe?

 

It’s generally considered more cost-effective to buy property because of the equity gains. Leased properties are seen as more expensive because rent across the country is deemed high. But is this really the case?

Buying:

 

Business property owners often pay an economical mortgage rate compared to rent. They may also be able to rent out a portion of the space to another business, bringing in an additional revenue stream. This efficiency makes buying particularly attractive for businesses enjoying continuing success and now looking to invest in security.

However, the cost disadvantage for owning a commercial property is the maintenance. You will need to take into account the costs for furniture, equipment and repairs. Some purchases also come with maintenance fees to cover the cost of looking after the communal spaces and external fixtures – typically if the property is part of a larger building.

Some businesses are also sold with the property. For example, a business owner looking to sell a shop, café or salon might sell the property and the business model, equipment and contacts – essentially all the fundamentals needed to continue running the company. Undoubtedly, opportunities like these are singular and the costs need to be weighed up as a whole.

Leasing:

 

For businesses needing to be based in certain areas, leasing may be the only affordable option. Some desirable locations are simply too expensive to buy in, but this may be offset by the income generated from high levels of footfall and the chance to charge more. For example, if you run a boutique shop, you will probably earn more when you’re based on a popular high street in an expensive area that attracts people with money to spend. The same goes for lots of customer-facing businesses, such as restaurants, salons and hotels.

Leasing may come with the perk of no maintenance costs, so if anything breaks, your profits shouldn’t take a dent. If you do want to rent, be sure to check the contract to find out who is responsible for fixing problems to make sure you’re clear on what you would be responsible to pay for. 

Branded or unbranded?

 

Certainly, most companies will want some form of branding in their premises, whether it’s their logo on the wall or full-scale decoration to reflect their brand. So what’s possible when you buy or rent?

Buying:

 

A big bonus of buying your premises is the ability to really make it your own. If you want to put down roots and create a space purpose-designed to your business, buying gives you the opportunity to do exactly that. In fact, the opportunity to renovate and adapt the space is where buying offers flexibility. Subject to planning, you could completely overhaul the building and even reshape its layout. The only consideration you need to make is how easy it will be to sell the property after you’ve made these modifications, so it’s worth getting advice from local agents on what people are generally looking for in the area first.

Leasing:

 

You won’t usually have the same opportunity to remodel the space when you lease it, but there tends to be more flexibility with commercial properties than there are residential homes. Most landlords of business premises will let you redecorate, hang up pictures and signage and change fittings. You will need to check what’s allowed with the landlord first (so do this before signing for the property).

While you consider whether buying or leasing is best for your business, it is worthwhile browsing some properties for sale and to rent in your desired area. Just seeing what’s available might help you decide which option puts your goals within easier reach.