Businesses that perform a variety of different functions require physical locations to operate. Insurance agents and accountants need offices. Companies manufacturing products also usually need industrial facilities.
Some companies choose to purchase properties in which to operate, while others sign commercial leases. Each option provides different benefits and has certain challenges or drawbacks that may influence what business owners or executives decide is the best option.
How can those starting new businesses or expanding them choose whether to purchase or lease commercial space?
Financial considerations
Many issues may influence whether a lease or purchase arrangement is better. For example, it can be difficult for a startup business to secure a loan to purchase property.
That being said, the real estate purchased by a business could rapidly become one of its most valuable resources. As the company accrues equity at the property, the facilities become not just a source of financial obligation but also a high-value asset.
Leasing comes with a variety of expenses, including the possible need to pay a deposit and secondary charges related to maintenance. Still, the up-front investment is lower.
Flexibility and risk
Buying a property makes the business directly responsible for all maintenance and repairs. They also have to consider accessibility to ensure that the property complies with key disability regulations.
The amount of effort invested into modifying and maintaining the space can divert energy and resources from business operations. Ownership may also limit the company’s ability to adapt if a particular location proves unprofitable.
Commercial leases may last for two or more years, which is a significantly lower overall commitment than the permanent acquisition of real property. Still, there is always the risk of the business failing for the landlord selling the property and leaving the tenant in need of finding a new location. There is no one solution that works for every organization.
Business leaders usually need to look carefully at every possible concern when choosing to lease or purchase commercial real estate. The right decision can make a major difference for those running businesses. Those struggling to choose between leasing and purchasing may need to evaluate the situation with someone who has a more objective perspective on the matter, and that’s okay.
