If you are ready to launch a new business or you are expanding an existing one, you’ll have to make an important decision whether to rent or buy commercial real estate. For those looking to buy, you’ll need to pay upfront in cash or acquire finance with a bank loan/mortgage. On the other hand, with a lease, you can rent a property on specific terms and later negotiate if you wish to continue to use it.
Many factors are worth considering when you decide whether to buy or to rent a business space, such as:
- Your business cashflow
- Recurring costs
- Business equity
- Tax implications
- Purchase and financing terms, including closing costs vs. lease terms
Even though it’s been hit by COVID-19, the European property market bounced back strongly . Buying or leasing is a big and important step in your business life, so carefully consider the right option before making a final decision. Both buying and leasing have pros and cons and you need to decide what works best for you. Before you do, there are a lot of factors to consider. The best decision is an informed one, and our article will help you consider which one is for you.
Leasing: Pros
The main and the most obvious benefit of leasing a commercial property is that many people are just not in a position to buy, so they don’t really have other options. Leasing means you don’t need significant initial investments. If you are starting your business, or if your business is small, there’s a good chance that you’ll need to lease for some time until you’re financially secure and confident enough to consider purchasing a property.
Another main benefit of leasing the commercial space is agility – you can always move your business anywhere you like, adapting to your business needs. You can choose a property on the other side of the city, in another city or another country. People who bought the property would have a mountain of obstacles to climb before being able to relocate – from paperwork, finding a buyer, purchasing a new property, etc. That’s a lot of time and money saved if you’re leasing.
Leasing: Cons
The first con that comes to mind is that you’ll inevitably have high recurring costs. It can be especially challenging if you’re a startup, struggling to run a business that isn’t profitable yet. Leasing comes with costs, no matter how good or bad your business is doing from month to month. Even for long-standing businesses, a lease is a significant burden if you have a small scope of operations and low revenue.
You’ll also need to respect the owner’s rules and policies, even when it doesn’t suit your needs and plans. If you want to renovate or adapt the space (exterior and/or interior), you can’t just freely make modifications. You’ll need to discuss it with the owner and get their approval. Unless specified in the lease agreement, any adaptations must be cleared first and might incur additional charges. It’s not uncommon that the landlord refuses, limiting your options regarding your business space.
Buying: Pros
If you can afford it, owning commercial property can be an excellent investment, especially if you’ve chosen the location wisely. Big potential gains can be made for investors. Covid-19 created once in a lifetime investment opportunities, from which some have benefitted.
When you buy a commercial space, recurring costs fall considerably. It’s definitely more profitable in the long run, and it can give you more room in your budget to play with – invest more in your employees, business expansion, marketing, etc. There is also a much higher level of freedom when it comes to adapting the space to fit your needs.
Owning a commercial space can be a business of its own. Consider this – McDonald’s doesn’t make the majority of its income from their burgers. It makes it from owning and renting property. If your business is at a stage where you can consider franchising/expanding, buying is an excellent move. Do thorough research on cities that are the right choice for a significant investment. Currently, Paris is at the top for European office investment, so it’s an interesting place to consider.
Buying: Cons
The elephant in the room, obviously, is the cost. Commercial property, especially in high-traffic, downtown areas of big cities, can be expensive. All business owners without a substantial initial investment won’t be able to afford it. When it comes to those amounts, mortgages and bank loans can be as expensive as leasing costs or even higher.
Buying a property is a long and complex process that comes with many difficulties, a lot of paperwork, and legal stuff. It’s much faster and much easier to lease a commercial space.
The buying process can occupy all your attention, so your business may suffer in the meantime. It’s good to have a person/team that can deal with the process of buying instead of you or someone who will manage your business’s daily operations while you’re working on buying.
However, purchasing a property is a big move, with big risks. The consequences of real estate market instability or any property damage fall entirely on you. That’s why you must have a good grasp of the real estate market trends or (preferably) a financial advisor in the process. Accurate data is crucial when buying a commercial property, so thorough research is a must.
Relocation to another commercial property
What if you already own a business and want to relocate? Business relocations can be an excellent opportunity for rebranding and/or refreshing your company’s image. Fresh, improved space can boost your team’s motivation and maximize their productivity. Whether you decide to lease or you’re more into buying a property, you’ll need to find appropriate help when the time comes to move your business to another place. Commercial movers are a lifesaver. They can conduct preparation for your relocation while you stay focused on your business.
Conclusion
A big decision like this is too important to make on your own. Ensure you’ve weighed all advantages and disadvantages and consulted with the experts (an agent specialising in commercial real estate, a conveyancing lawyer, a mortgage adviser, your accountant, etc.) before you move forward. Whichever you decide, we wish you good luck and a lot of success in your business.
