My Company Needs to Move – Should I Buy or Lease? If you’re considering a new location for your business, you have a ton of decisions to make – but chief among them is whether you should buy or lease your new space. As with anything, there are pros and cons to both. It’s important to weigh them carefully so that you’re sure you’re making the right decision for your business.
We interviewed Trout Daniel & Associates (TD&A) Principal and commercial real estate veteran, Steven Cornblatt to give you all the information you need to move forward.
What are the benefits to buying?
Buying is more permanent than leasing and also allows the buyer, especially an owner – occupant, to control its own destiny. In addition, there are many tax benefits to owning versus leasing property. Consult with your tax advisor to learn how you can take advantage of available tax benefits. Finally, buying is especially attractive when interest rates are low, providing affordability for most business owners who are on a budget.
What are the benefits to leasing?
Contrary to buying, the temporary nature of leasing provides a business tenant with more flexibility and optionality, including the ability to expand or downsize its operations on a locational basis.
In addition, as a tenant you can negotiate for concessions from a landlord that are not available to buyers of commercial property. Leasing costs are also deductible, so there are tax advantages there as well.
Does the type of business matter when it comes to buying vs leasing?
Absolutely! A generic flex space can accommodate a whole host of different uses, from a 95% typical office use with 5% storage or a 95% typical warehouse or ‘plug and play’ assembly operation with 5% office use.
Generic spaces leased for office, flex and warehouse use can more easily relocate without prohibitive cost and time considerations. Leasing with that flexibility can be advantageous, whereas a manufacturer of heavy equipment, for example, will make a substantial investment into its facilities and equipment, thus making relocation both cost and time prohibitive.
Also, many business models are project-driven and intended to be more temporary. Remember, in the scheme of things, a 5- or 10-year project, while considered long term, is still relatively temporary.
What considerations should business owners keep in mind when deciding whether to buy or lease?
First and foremost, business owners need to consider the purpose of the real estate required.
Secondly, availability of the right type of property, your budget and available funds for securing the right property for your business should drive your decision-making.
Before jumping into the often complicated site selection process, retaining an expert tenant (buyer) representative, often referred to as a “tenant rep”, is highly recommended. Initially, your tenant rep should spend time with business leadership to understand the following:
1) Your business
2) Your intended purpose, goals and objectives for the required property
3) Your site selection criteria for the right property
4) Prioritization of your criteria
Your Site Selection criteria may include, but not be limited to your timing for occupancy, budget range, property size, storage needs, parking, exposure, loading, clear interior heights, size and capacity of utilities, proximity to major roads/highways and more.
Once your Rep has a solid understanding of the above, they should provide a professionally prepared comprehensive market survey for your review, followed by a discussion to whittle down the list to the logical candidate properties.
The next phase of the process involves your rep contacting the listing agents and/or owners of candidate properties to best address any questions, concerns, or open issues regarding the candidate properties.
This phase helps to further reduce the candidate property set to a manageable handful so that the touring process is an efficient use of everyone’s time. The last thing you want to happen after all this work has been done is to arrive for a property tour only to learn a property doesn’t have, for example, the needed electrical capacity or correct number and size of loading dock and drive-ins.
Following tours, you’ll need to determine which, if any, of the candidate properties will work for your needs and within your budget, after which the parties will enter into negotiations for a lease or purchase.
When Should You Buy or Lease Commercial Property?
Because buying is more permanent and financing requires a more in-depth study and evaluation process, a buyer should give themselves more time to go through the process.
Conversely, and largely dependent on the complexity of the requirement, leasing typically requires less time. From start to finish, I like to have at least 9-12 months for a buyer and not less than 4-6 months to go through the process on behalf of a tenant client.
If you have any questions about the often complex of buying vs leasing, contact Steven Cornblatt at TD&A. He and/or a member of his team will be glad to have a more in-depth discussion. You can reach him by phone at (443) 921-9331 or via email at scornblatt@troutdaniel.com
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