Owning VS. Leasing an Office Space
Every successful business owner will reach a point in their journey where he/she will have to decide whether to own or lease their commercial space. It is important to understand that the decision to buy or lease is not only a financial decision, but a thorough evaluation of other factors which must be weighed to reach a decision that best compliments the business.
Below are a few Reasons For and Risks of Owning or Leasing a Commercial Workspace:
Reasons for Ownership
- Long-term benefits such as depreciation, tax benefits, and property appreciation can make the investment less expensive as the years go on
- Ability to control quality of life through selection of property management teams
- The fact that many corporations have significant amounts of cash reserves on hand which could be deployed to real estate interests
Risks of Ownership
- Ownership is a non-integral part of one’s business that requires significant time, knowledge and resources
- Less flexibility for growth or contraction as you are tied to the space
- Economic risk can cause potential loss in property value and risks in population changes, transportation or neighborhood quality can adversely affect a property as well
Reasons for Leasing
- Favorable lease terms can mean lower upfront costs and availability of varying lease terms
- Flexibility for growth and contraction
- Ease of disposition of the property as a business can decide whether to stay or leave after the lease ends
- Dependence on a third-party property manager to solve service issues
- Market rent fluctuations and landlord concession differences
- Ownership changes of the property can sometimes leave feelings of uncertainty
Being an Owner-Operator can be advantageous, especially in the long-term. However, Owners must be cautious about the future of their business and whether the business is expanding or contracting. Leasing also has its advantages, especially for start-up businesses. However, one will not have as much control in certain areas as a lessee.
It is always beneficial to speak with a Commercial Real Estate Broker regarding these issues. The decision regarding real estate usually results in one of the largest expenses for a business and should be approached with care.