Commercial property: renting vs. buying
Let’s start with your small business, is it a well established business? Or is it a young business that you expect to stay at its current size? Or do you expect your business to significantly expand in coming years?
All businesses are different and there are a number of factors that should be taken into consideration when deciding whether to buy or rent a commercial property.
You should try and picture your business in five years time, where do you expect to be? Renting a commercial property is generally a more flexible option than buying, at least in the case of short term property rental. If your business is fairly small but you expect it to expand, leasing may be the more suitable option.
Should I buy?
Buying commercial property is a huge achievement for any business, especially if you have always rented in the past. If you are able to buy the right property at the right price for your business, you will be guaranteed to reap the benefits in the long run, both whilst you occupy the property and when the time comes to sell.
Buying a commercial property can be a big step for any business. It’s quite likely that you will have to take out a commercial mortgage to finance the purchase; this presents various advantages and disadvantages when compared to renting commercial property.
You should also know what your business requires from the commercial space before you check out the various locations. For example, if you have intentions to grow your company it may be a good investment to purchase a larger property, that way as your business expands you will have the room to do so.
Advantages of buying
- You don’t have to worry about your landlord increasing the rental prices.
- If your property value increases, your business asset value will also increase.
- Some lenders are able to offer fixed rate commercial property mortgages, giving you security for a set amount of time.
- The interest of your commercial mortgage is tax deductible.
Disadvantages of buying
- If the value of your property decreases, then so will your business asset value.
- Owning the property may make it more complicated to move if your business needs to.
- As you will own the premises, you will be responsible for any maintenance.
- To buy a commercial property you will probably need to pay an initial deposit of around 20 to 30 percent.
Should I rent?
Financially, renting commercial property makes real good business sense. Upfront costs for renting business premises are often fairly low, though you might have to pay a premium fee to purchase the lease. Sometimes you will also be required to provide a refundable deposit. But in general, renting will tie up less capital than buying, freeing up cash that can be used elsewhere within your business.
The type of premises that you rent and the location will be largely dictated by the size of the business you are running. The amount you can afford to pay, whilst taking into account extras such as utility and business rates, and building insurance which will also be an important factor.
Advantages of renting
- The landlord will be responsible for any property maintenance.
- Your business will not have to deposit a large sum of money for the property.
- You will not be exposed to property price fluctuations.
- Should your business need to expand, it will be easier to relocate
Disadvantages of renting
- As your business is paying money to a landlord, you won’t own the property.
- If commercial property prices were to increase, your business wouldn’t benefit from this.
- The rent price can be put up significantly, potentially putting your cash flow under pressure.
This article is brought to you by Quayside Estates Commercial Property, Quayside estates are specialists in providing bespoke property solutions for businesses such as office spaces and warehouses.