There are good arguments for both options, and in this article we’ll explore the reasons why you might choose one over the other. Every business is different, so whether you decide to lease office space or purchase your own really comes down to your own particular situation. Still, with some knowledge of the pros and cons of leasing and buying you’ll be in a good position to make a decision.
Buying office space
- Predictable costs: with a fixed-rate mortgage you’ll have a reliable monthly cost that you can easily factor into cashflow predictions. Rental rates can rise unexpectedly, leaving you with potentially higher costs.
- Rent out space: The cost of owning office space can be defrayed by leasing out a portion of it. This can be advantageous if the office is in a desirable location, but if there’s little demand for rental office space you may struggle to get tenants.
- Capital asset growth: Property tends to be a safe asset in which to invest, and your office may well increase in value over time.
- Securable asset: Property can be used to secure loans, which can be a very valuable way of expanding your business. Even if you use a mortgage to buy the property it may still be possible to take out a “second charge” loan on your office building.
- Upgrade potential: If you need a better infrastructure such as a faster internet connection or enhanced telephony, you can make these improvements if you own the property. It may be hard to find rental office space with the ideal infrastructure already in place, particularly if you have specialised requirements, and it may be hard to convince the owner to make improvements.
Balanced against these advantages is the lack of flexibility that owning an office enforces. You’ll also need to sink some capital into purchasing the office, though most businesses will use a mortgage to pay for most of the capital costs. Once you’ve purchased an office it will be costly and difficult to relocate. That means you need to get it right first time, and be absolutely certain it’s the perfect place to run your business.
Renting office space
- Premium property: You may be able to rent an office that you could never afford to buy. High-end office space may be worth investing in if your business has an image to maintain, such as a marketing agency.
- Flexibility: If you need to relocate, it’s much easier to leave a rented office than one you own. You won’t need to find a buyer, and while you may still have to pay several months of rent this will probably add up to less than the costs of selling your office in a hurry.
- Sharing office space: By renting just part of an office, you can keep your costs to a manageable level. This is a viable option for small businesses that don’t need much floor space.
- Maximise working capital: Capital expenses for a rented office are much lower than for a purchased one. This means you don’t have to plough money into real estate, which can be important if your business doesn’t have easy access to capital.
Renting office space lets your business stay flexible, and has many advantages for small businesses. Balanced against this, however, is the lack of long-term stability. Rents may go up, or the property owner may sell the building, and there isn’t much you can do about it. Generally speaking, renting office space has more advantages for growing businesses who are establishing themselves.
Should you buy or rent office space?
Making the decision to buy or lease an office isn’t easy, but you need to get it right. If you’re certain that a given location is ideal for your business, that the costs are manageable, and that you can afford to sink some capital into ownership, then purchasing office space makes a lot of sense. However, many businesses will find it more advantageous simply to rent office space. This lets them stay adaptive to a changing business environment, which is crucial for any growing business. Carefully consider both options before making any financial commitments.
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