Now is the time for businesses to review their existing property space. If you run a business, you might be wondering whether you should lease or own your property. Before making such a significant business investment, you should start by working out your average growth rate and projected growth. Consider your business’s goals and how much access to capital you have.
Here are some of the pros and cons that you should consider before deciding whether investing in commercial real estate is right for your business.
Reasons for renting an office:
- Your business is in the development stages, and you are not sure how fast you might outgrow the property;
- Prime Property: Renting or leasing office space in a prime location is more affordable than buying. An office in a good location and high image is central to your business model;
- You need to locate a building within the next 30 to 60 days;
- You have more flexibility to adapt to changing business conditions;
- You don’t have enough capital for a deposit. A lender will typically request a deposit between 20 and 40 per cent of the mortgage to secure the loan.
Reasons for owning an office:
- Buying allows you to have full control of the property, and you don’t have to answer to a landlord;
- Fixed Costs: Securing your commercial mortgage long-term can give your business clear, fixed costs;
- Investment: The commercial space is likely to appreciate over time. Once you sell out, the capital return can fund your retirement later on in life;
- The rental income accrued over a long period could cover the property purchase and the cost of occupying your own office too;
- You are building equity and long-term wealth;
- If your circumstances change, you can lease the property to a third-party;
- You can offset some of the costs of maintaining the property;
- You are better placed to balance the organisation’s cultural needs because you can grow or reduce your office space as your business fluctuates. Any excess space can accrue rental income;
- If the property increases in value, your capital could too;
Making The Decision To Buy Or Rent
If you consider buying a commercial space to operate your business, you will require an Owner Occupied mortgage for your business. An individual or company takes out this type of loan. If you are looking to secure a business mortgage, you must demonstrate that your business has a secure and stable trading history.
Future-Proof Your Office Investment
If you’re leaning toward buying, it’s worth considering how you would ‘future-proof’ it so that it will fare well for investment purposes long-term. Charles Ayton, Senior Commercial Manager for largemortgageloans.com, comments, “I see lots of business owners are attracted to the comfort and security of renting or leasing an office, but as a consequence, they can end up losing out on a long-term investment. I would urge business owners to assess their office investment and create a clear roadmap for the future, approaching it in the same way as a marketing plan. The rental payments accumulate to sustainable figures over time, and it would be a shame not to use that towards long-term investment.”
Charles Ayton, provides his advice on how to increase the value of the property, “Forward-thinking landlords should look at when buying or developing offices that provide amenities that take wellness on board. For example, adding bike storage and shower facilities, social areas and lots of natural light. Another consideration is purchasing a property with strong ESG (The Environmental, Social and Governance) credentials.”
Although new landlords will pay a premium for a high ESG rating, the property will fare better long term. It will attract more businesses interested in renting, and when you eventually sell the property, it will be likely to sell at a higher rate.