To rent or buy on office location is one of the most critical decisions many small business owners face. If you’re a start-up or a growing venture and wondering which is right for you, then we’re here to help.
Unfortunately, there isn’t just one clear cut answer! As each business is unique, so are your specific needs. We can help you discover what’s right for your business by exploring the pros and cons of both options.
Purchasing vs. Leasing
So, your business is at a crossroads: to buy or not to buy, that is the question. However, to arrive at the right answer, there are a few more considerations that you need to ask yourself, such as:
- How many employees do you have?
- Is there the potential for further growth in numbers?
- What’s the company’s financial position?
- Do you have the capital to buy?
- Is the physical location of your office crucial to reaching your target market?
Understanding the specific needs and goals of your business will help you weigh up the advantages and disadvantages of both buying and leasing office space.
Pros of Buying Office Space
- Fixed Costs: Locking in a commercial mortgage can mean transparent, fixed costs for your business over the long-term.
- Tax Deductions: Owning commercial space can provide tax deductions that you wouldn’t have the opportunity to leverage when renting.
- Supplementary Income: Owning also gives you the option of renting out any unused office space to generate an additional business revenue stream.
- Freedom to Develop: Being your own landlord gives you the freedom to manage and develop the space as you wish or as your business needs.
- Appreciating Asset: Property constitutes a business asset that appreciates in value over time, making it an excellent long-term investment. Even if property prices decline at any stage, commercial real estate is typically less volatile than the residential market.
Cons of Buying Office Space
- Upfront Costs: Substantial costs of purchasing an office can represent a significant barrier to entry, particularly for the new investor. You will need to have access to a sizeable amount of capital before embarking on this path. A deposit of around 30% of the purchase price, all equipment and furniture, and maybe even renovation expenses all have to be factored in, with enough left in the bank to meet your ongoing regular business expenses.
- Maintenance: Owning and occupying a property means that all repairs and ongoing maintenance and the costs that come with them are your responsibility. However, if you’re renting part or all of your property out, it’s usual for tenant to cover at least some maintenance costs.
- Lack of Flexibility: In the absence of the proverbial crystal ball, no one knows precisely what the future will bring. Sudden or unexpected changes may mean that your office space no longer fits your needs. If you have to relocate or need more space, you may face an extended time lag as the sales cycle for commercial property is relatively long.
- Location: Location might be an issue when you’re buying, because the more attractive office locations come at a higher price. Finding a suitably sized office for your needs in the right location AND for a decent price can be very challenging.
So much for purchasing. Now let’s look at the things you need to keep in mind when renting a commercial property:
Pros of Renting Office Space
- Prime Locations: Leasing office space is an affordable way to access office space in a top location and enjoy the prestige that comes with it. This may be the best option if you or your clientele is location dependent, or you’re operating in an industry where external impressions are vital.
- More Working Capital: Since all your cash won’t be tied up in property, your business can take advantage of new opportunities that pop up in the market. Some rented office spaces, such as serviced offices, come fully fitted out with most if not all of the furniture and business equipment you may need, meaning you’ll be able to hit the ground running without additional outlays.
- Less Stress: With ownership of great property comes great responsibility. Leasing gives you all the perks of office space without the added stress of property values, maintenance and other pressures. A landlord or commercial property manager will deal with the general running and maintenance, while you focus on growing your business.
- Flexibility: Renting expands your options regarding space, amenities and location. Owner-occupiers are inherently tied to their investment, and location changes are expensive and time-consuming. The opposite is true in the rental market, where options abound to suit any requirements.
Cons of Renting Office Space
- Varying Costs: There’s always the danger of annual rent increases. Additionally, most commercial leases require the tenant to cover all utilities as well as many of the maintenance costs.
- Limitations on Use: Renting someone else’s property means you are restricted in what you can do with the space to customise it to your unique business needs.
- No Investment: When you’re paying rent, you’re investing in the landlord’s equity instead of your own asset. To many, this is seen as dead money that could otherwise be working for you.
Before you Sign…
Now that you’ve asked yourself the hard questions, and you’ve weighed up all the pros and cons of buying and renting office space, there’s one last thing to do before you sign on any dotted line: get expert advice. At MCO, our outstanding team of commercial real estate agents, property managers and support staff have decades of experience in the Melbourne commercial property market. Contact MCO today to discuss your requirements, and we’ll be happy to help you find the solution that works best for you.