Property for Businesses | Should you Buy or Rent?

To Buy or To Rent?

New and existing business will often need to consider the decision whether buy or rent commercial premises.

Before a business makes this decision, there are a number of factors that need to be considered.

Dan Smith, director of M4 Property Consultants considers these and outlines their various pros and cons. However, circumstances can vary and Dan recommends always taken the advice of a chartered surveyor to help you through the process.

Buying Commercial Premises

Why you should buy your business property

Fixed costs – the business owner will have greater certainty of their fixed costs which will be of benefit when making future projections and plans. Allowances would not have to be made for potential future increases in rent etc.

Tax benefits – owning and managing your own business premises can provide tax and expenses deductions.

Additional income – surplus space within the premises can be sublet to generate additional income.

Investment – unlike renting, the company will be investing in the purchase of the premises. If commercial property prices increase, you will benefit from those gains. Property can also provide a valuable asset on the balance sheet.

The disadvantages of owning your business property

Cash-flow – A significant amount of money is required to fund the purchase of a commercial premises. Typically, the business may need to provide a 30% deposit. Consideration needs to be given as to whether this investment can be justified or whether the money would be better spent on new equipment, staff training, etc.

Flexibility – purchasing a commercial property should be a long term commitment. Relocating can prove more difficult if a business owns the building. If the business is growing rapidly or the industry it works in is experiencing radical changes, they need to consider if purchasing is the right option.

Time – It can be a lengthy process to identify and acquire the right commercial premises. This can be eased by employing a chartered surveyor to work on your behalf in the acquisition.

 

Renting Commercial Premises

The benefits of renting business property

Free-up Working Capital – renting usually only requires the business/entrepreneur to only pay an initial deposit and then a quarter’s rent in advance. This ensures that available cash can be invested in the development of the business, not the property. Time- allows the management more time to focus solely on running the business.

Prime Location- Sometimes, particularly with retail property, renting is the only way to secure a prime location. This may be fundamental to the business success and more important that purchasing a property.

 

The cons of renting

Variable Costs – Commercial leases often contain rent reviews which mean the rent could increase. Service charges may also increase. These costs are difficult to control.

Lack of investment – When renting, the rent paid assists the owner to pay their mortgage and provide them a valuable asset, not the business occupying.

Restricted by lease – Leases provide a number of restrictions within them. These vary on individual properties. However, opening hours may be restricted, the permitted use within the building may be limited and other restrictions may apply.

There are clearly advantages and disadvantages to both buying and renting commercial property.

However, many factors can impact this decision such as an individual business’ requirements, the current and future financial position of the business, the potential for expansion, the state of the local property market and many more.

That is why it is crucial to consult with professional advisors including your accountant and your chartered surveyor.

To speak to a trusted land and commercial property agent in the South Wales and surrounding area, get in touch with the team at M4 Property Consultants.

01633 740 740 | [email protected]