Buy or Rent: The Pros and Cons for Commercial Property

If you’ve outgrown your current business premises, you might be looking to upgrade to something bigger and better. But whether it’s an office, a warehouse or a retail store, the choice of buying versus renting is something that every business owner needs to weigh up. It’s not always a clear-cut decision and it will depend on several factors, from budget and the type of business you run to your long-term business plan. 

Here, we take a look at the pros and cons of buying or renting a commercial property to help you decide. 

The advantages and risks to buying commercial property

Buying a commercial property offers several advantages. Firstly, if you own the property, you don’t need to seek permission to make changes or sublet part of the property to make additional revenue on your investment. You avoid the risk of rent increases and lease negotiations, and each payment you make on the property will add to your returns if you choose to sell in the future. If you’re wise with the property you buy, you may find that the value increases over time, so you’ll increase your return on investment which isn’t possible with a rented property. 

That being said, there are downsides to consider. The biggest obstacle that many people face when choosing to buy a property is the size of the deposit needed to secure what they want. It’s not always possible to free up money from your business and without the necessary deposit, you won’t be able to get a competitive mortgage. Buying a property is a complex and time-consuming process, which may not fit with your business goals. As the owner, you’re also responsible for the maintenance and repairs of the property, which may impact your profits. 

The fixed costs may be a benefit to your business, helping you plan your finances more successfully. But consider that there are more costs than just your mortgage payments to think about. “Buying a property is a major investment that requires careful analysis”, explain purchasing experts at Hudsons Property “In addition to getting a mortgage arranged, you will need to have funds available for the deposit, stamp duty, legal and surveyor fees, estate agent fees (if you are selling a property) and removal costs. Ensure that you leave yourself plenty of financial headroom for unexpected expenditures”. 

Pros and cons to renting a commercial property

Renting a property has its own unique set of benefits and drawbacks. A lease is certainly a liability your business needs to take into consideration, while an owned property is an asset, but the set-up costs are much lower. For start-up companies who might be facing unpredictable cash flow, this is a huge benefit and keeps costs lower while you’re growing your brand. The process of moving into a rented building is also much faster and easier than buying, which is great news if your business is growing quickly. 

The downsides of renting over buying are that your rent commitments can change with very little warning, and the process of moving to a different space is time-consuming and inconvenient. If the new rental amount doesn’t work with your budget, you could find yourself in a difficult situation. As a renter, you’re also not able to make many (or any) changes to the property, nor will you benefit from increases in the property’s value if you’re there for a long time. 

As a tenant, you’re at the mercy of your landlord when it comes to lease negotiations too. “Commercial tenants with leases protected by the 1954 Act have the right to renew their lease and can do so by serving the relevant statutory notice to their landlord. Alternatively, when the rental term is coming to a close, your landlord may choose to serve you with notice”, explains Mignonette Ellis at Martin Tolhurst Solicitors, “either way, you must be mindful of time limits to ensure you do not lose your rights to renewal or incur unnecessary costs. 

Weigh up your circumstances

As we’ve explored, there are several factors which impact whether buying or renting a property is the right move for your business. In either case, it’s a big commitment that requires plenty of thought and research. If you have the deposit in place and you believe it will work with your business’ long-term goals, buying can be a great way to increase your return on investment and give you more stability. 

However, if your company is still in the early stages and you value flexibility and having more options at your disposal, renting certainly is the more versatile and faster-moving of the two options. It’s worth speaking to an advisor before making any big decisions for your business so you can weigh up the different options, but it’s also worth asking other business owners you trust for their perspective. They may have opinions you hadn’t considered previously.



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