Commercial Property: To Buy or Not to Buy?

At some point, every entrepreneur will face the decision of whether to buy or lease commercial property from which to run their business.

This may be right at the beginning of the venture when the business is just starting up, or further down the line as the company expands and requires a larger property.

However, whether you are a start-up, or a small but established business looking to expand, the pros and cons of buying commercial property remain the same.

Advantages of buying commercial property:

• You do not have to worry about the impact of a rental increase
• An increase in the property’s value means capital gains for your business
• A fixed payment mortgage allows you to better forecast outgoings
• You have the option of subletting some of the property, which can make your contribution towards the mortgage payments less than it would be to rent
• If you hit a difficult patch further down the road you can re-mortgage to raise cash
• You have the freedom to redesign, rebuild or extend the property to suit the needs of your business

Disadvantages of buying commercial property:

• In order to secure a mortgage, the lender will usually require a deposit of 20-30%
• Maintenance and upkeep of the property is your responsibility, as is the financial cost
• In the event that the property decreases in value, it will affect your business capital
• If you don’t have a fixed-rate mortgage then your monthly payments fluctuate.
• You do not have the flexibility to quickly move to a new property if circumstances within the business change
• Purchasing premises means that you will have less money to spend on other areas of the business, such as staff and equipment
• Owning property hampers your exit strategy should you decide to close the business, leaving you with an asset that incurs costs

Finding the right property

If you have considered all of the above and still feel that buying commercial property is the right move; there are a few factors to consider in order to secure an appropriate site.  In fact, even if you decide to rent your business premises, the pointers below will still help you find the right property.

• Work out how much space you will need per employee
• Consider whether you will require additional space for meeting rooms
• Do you need parking spaces for yourself and any visitors?
• Take into account how much storage space you will require for stock or as records increase
• Look at modern properties that are secure and which have good natural light
• If you require special permissions to run your business, will it be granted for the specific property you are considering?

Whilst the building itself is of course key, do not overlook the importance of location.  Retail businesses will of course want to be positioned close to their customers and be easily accessible, with good visibility.  Being close to suppliers can also be a huge benefit.

In contrast, businesses that use provide services and use technology for communication can opt for more remote locations.  Just remember that your employees have to make their way to and from work!  Being too far out of the town or city center may limit your options when it comes to finding the right employees.

Counting the cost

You probably won’t be surprised to learn that purchasing commercial property will initially cost more per year than leasing.  However, after the first five years, things tend to even out and cost around the same amount for the following five years.

Once you have owned the property for around ten years you will then start to save money in comparison to leasing.  Of course, this is only a rough guideline.  However, it does highlight the fact that purchasing commercial property should be seen as a long-term investment.