Choosing commercial property, and whether to rent or buy, is regarded as one of the most vital decisions for any company.
It’s a difficult process for all businesses, whether you’re a small SME working from home requiring space to satisfy a growing workforce, or a larger firm planning a move as the next step in your expansion plans.
So, what are the benefits and drawbacks of each? And which one is right for you?
Renting Commercial Property
As it stands, most businesses do rent their premises, in fact, over half of all UK commercial property is rented (compared to only 33% of homes.) So, why do so many businesses choose this option over buying?
Not surprisingly, the biggest influencer for most businesses is price. And in many cases, renting is the more cost-effective solution.
Buying a property will require considerable equity and a commercial mortgage which you’re committed to long-term. It’s important that you consider not only the impact this will have on your profit margins, but also the restrictions it will place on your ability to generate or loan capital for new projects.
Often, when you’re only renting a property, the chances are you’ll have less responsibility for maintaining the premises. Instead of shelling out to fix that broken toilet (trust us, if it can break, it will), the responsibility should fall to your landlord. Although the issue will still be an annoyance, it won’t be a financial one! (*Editor’s note: Please be aware that whilst this is often the case, occasionally a tenant will be required to maintain the premises if stated in their contract).
At some point in time, your business (hopefully) will be ready to take the next step and upgrade to a larger facility. This will be much easier if you are renting a property and only need to inform your landlord within the required notice period.
If you own your current property, any move will be a.) Dependent on you selling your current building first and b.) Constrained by the lengthy process involved in acquiring a new site.
The ability to move offices in a swift manner could be critical in you reaching your long-term business goals.
We’ll keep this short and sweet. Due to the speed in which new commercial property is being developed across the UK, the choice of buildings you have when renting far outnumbers those available for purchase.
Buying a commercial property is a prolonged task. Never mind the legal fees required, the whole process is likely to take up a lot of time and energy that, if you rented, could be spent improving other areas of your business. Whilst renting will still include a lot of paper work you’d rather not do, it pales in comparison to the workload associated with buying your own property.
Buying Commercial Property
So, at this point you’re probably thinking renting is the best solution and wondering why anyone would bother to buy their own site. Well, think again. Just like renting your premises, the benefits for buying are plentiful.
This point certainly doesn’t require much of an explanation. One of the biggest benefits or purchasing your own facilities is that, should the value of the site increase long-term (known as asset appreciation), you are presented with the option of selling the premises at a profit, enabling you to invest your capital into other areas of your business, possibly even a new, larger facility.
Additional revenue streams
There are numerous reasons why your current premises might be too large for your business. Maybe you’ve realised you need to downsize? Or possibly your business hasn’t grown at the speed you were forecasting? Either way, when you own your property, this situation doesn’t have to be a bad one. If anything, you should look at it as an opportunity to maximise your revenue streams.
Unused space in your premises can be turned into an advantage. Many businesses sub-let their commercial property to other businesses and generate an additional income.
Increased business valuation
When you purchase a property, it then becomes a tangible asset for your business. Should you be seeking potential future investment, or even considering a future sale of the firm, owning your own facilities is certain to increase the valuation of your business. Owning your own premises could even be a deciding factor in the buyer’s decision to purchase your firm.
Just think, when you’re renting your property, what are you getting back (long-term) for your investment? Buying the site outright will mean every penny you spend will go that little bit further towards building equity.
If you don’t own your own building, you aren’t the master of your own destiny.
Imagine you have a three-year lease with your current landlord. The three years is coming to an end and you’re more than happy where you are, it feels like home. Only to find out that your landlord has other plans for the property. What do you do then? What if moving is not financially viable for your business?
If you own your own property, this won’t occur. Controlling your own facilities enables you to plan for the future with confidence and security.
So, there you have it.
As you can see, there’s no definitive answer to which option is the best. Before you start the process, it’s important that you consult your long-term business plan.
There is no right or wrong choice as it wholly depends on the unique needs and requirements of each business. Before you make any decision, it’s always advised to speak with an expert first who will lay all the options out in front of you.
We hope we’ve given you food for thought on the subject and you’ve left with a better idea on which direction to take.
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