Renting office space vs. Buying: Six Factors to Consider
When trying to decide between renting office space versus purchasing, there are roughly six factors for executives to consider.
1) Cash Outlay – leasing office spaces requires less cash than when companies purchase property. Business owners don’t need upfront money for renting. Companies that buy, on the other hand, must have a significant amount of cash upfront to purchase office properties.
2) Office Space Costs – rental facilities for furnished or shared offices often set their prices based on market demand. Commercial real estate purchases though offer no guarantee of value increases or appreciation. Temporary office space rental provides flexibility so that companies may change their location when employee or operation growth increases.
3) Growth – outgrowing a rental office building doesn’t always cause financial upheaval, but an increased need for space in an owned building potentially creates a crisis. Individuals and companies can easily avoid the cost and hassle of moving simply by renting executive office suites from an office space provider. This is not even an option for owners of commercial buildings.
4) Property management – Owners of commercial buildings must have property management teams to handle any facility issues that arise. Often, larger companies buy large office spaces and then rent out a portion of the space until they need it. This strategy is not always an option for individual entrepreneurs or small business owners.
5) Appreciation – Like any investment, buying office space may create profit or loss. Owning a building generates far more work than a simple rental. Because commercial real estate runs in cycles, companies should only invest in good financial markets in order for an appreciation strategy to be effective.
6) Tax factor – when business rent temporary office suites, they may deduct their payments and write off repair work immediately. Purchasing office facilities allows for depreciation of any property improvements. Business building owners may also deduct interest for any loan balances, tax liabilities or other expenses.
It is vital that business owners understand their property needs and requirements. Commercial real estate fluctuates based on location, and these changes can potentially impact successful companies. Be sure to consult with tax and financial professionals to determine if renting office space is an option that is right for your company.
Established businesses typically have the financial ability to invest in large real estate transactions. If they plan to maintain offices in one location for many years, then buying commercial office properties offers better benefits.