Buying Vs. Renting a Commercial Property

The economy is volatile and has been for some time; the combined effects of coronavirus and Brexit have seen fluctuations in the property markets, a cost of living crisis, and a direct impact on many businesses’ trading status. As such, it can be challenging to gauge what to do when expanding your business into commercial premises. Is it wiser to buy or rent a commercial property? Here are the pros and cons of both.

The Pros and Cons of Buying

The Pros

One of the significant benefits of purchasing your commercial property is that you can make changes to that property with impunity; you do not require permission from a landlord to make even minor changes, and you can carry out major renovation and refurbishment works to get your space to your exact specifications, and to fulfil your needs perfectly.

Another advantage is that you aren’t tied down for a fixed amount of time. The space is yours until you sell it, so you don’t have to worry about waiting out a tenancy or letting another, better commercial property opportunity pass you up.

Lastly, your commercial space is an investment – and the property market, volatile as it can be, tends to appreciate over time, largely faster than the rate of inflation. This means you can grow your investment, increasing your equity in the longer term.

The Cons

Purchasing a commercial property can be expensive, often requiring a large deposit to secure the purchase, which can have a tangible impact on your business’s profits, especially if you are a young company. You could use a business loan to finance your expansion into owning commercial premises, which would give you the option to pay for your deposit over time essentially – but it would be necessary to factor into your business’ growth plan.

Another contingency to plan for is the potential loss in value your commercial property could suffer. This could be for any number of reasons: market volatility, an increase in disaster risks such as flooding, or even a simple re-valuation of your property discovering significant issues.

The Pros and Cons of Renting

The Pros

The process of renting business premises is far quicker than purchasing one, meaning you can set up your base of operations and begin trading faster. The landlord for your premises is also directly responsible for the state and health of the building, meaning you spend less time fixing issues than if you buy. Certain premises may also come with included conveniences, such as free internet, concierge services and even furnishings.

Renting can be cheaper for your business in the short term, as it does not require a large up-front deposit – meaning you can preserve your immediate profits and worry less about managing lines of credit. Since repairs are the responsibility of your landlord, expenditures on issues that arise with the building are also wiped out, keeping your overheads as low as rent and energy.

The Cons

Over time, renting a commercial property can become an expensive endeavour; your rent may rise as the area develops. With every rent payment, you are gaining nothing in the form of equity. When your tenancy ends, the only thing you will receive in return is your initial deposit –. In contrast, your only expenditure is the interest on any commercial loan agreements with purchasing a property.

Renting, while appearing to be a flexible option, can present difficulties. You may find yourself wanting to expand but stuck in a fixed-term contract with your landlord, especially if they refuse your request to end it. As a result, your growth can suffer waiting until you are legally allowed to terminate your tenancy.