If you are looking to move your business, you might be wondering whether to buy or rent your next premises. There’s lots to consider and each option has its pros and cons.
Here, David Grove, Lead Partner within the Firm's Commercial Property Department at FBC Manby Bowdler, compares the benefits of buying and renting commercial property to help you decide which one might be the right move for you and your business.
The pros and cons of buying
It’s an investment opportunity
Like any property purchase, buying a commercial property can be seen as an investment. The property may go up in value and as the owner, you can profit from this increase. You can also offset the interest paid on the mortgage against your net profits.
The downside is that you will need a large deposit to secure the property – usually around 20-30% of the purchase price – which may not be viable for smaller businesses. There is also the risk that the property could decrease in value, which would mean you owe your lender more than the property is worth.
It could put you in control of your future finances
Another key benefit of buying your own premises is that you can better plan your business’ costs. With a commercial property, you may be able to fix your mortgage payments for up to ten years, keeping your outgoings steady.
If you were renting premises, you may be subject to rent increases. This makes it harder to create accurate business projections and it could also make doing business more difficult if you are operating on tight margins. In fact for some companies, a large rent increase could make their business unviable.
Similarly, if you have a variable rate mortgage on the property, payments can also rise by a significant amount.
You have the option to sell up if your needs change
Things can change very quickly in business, and you may find that the premises you bought are no longer fit for purpose – perhaps you need somewhere bigger or in a different location. If you owned your commercial premises, you could sell whenever you wanted and move somewhere new.
If you are renting, it could be more difficult to move as you may be tied into a lease. Some commercial premises have lease terms of up to 15 years, which may not work for your business. Leases will usually allow you to transfer your lease to a new person, but that is usually subject to obtaining the landlord’s permission (which may not be granted if the landlord has concerns over the ability of the new person to pay the rent and comply with the obligations in the lease).
You can make the premises your own
When you own your own business premises, you can make changes to the property that suit your business operations and this should be a consideration when thinking about buying or renting a commercial property. You may be able to make changes if you rent a property, but this will be subject to obtaining the landlord's permission.
Don’t need all that space yet? You could also sub-let all or part of your building, which is often not possible when you are renting.
The pros and cons of renting
The biggest disadvantage of a rented property is that paying rent will never offer a return. You don't benefit from any increase in the property's value and it can feel like money wasted. However, there are many benefits too.
Its faster and more straightforward
The process of getting into a rented commercial property may be quicker and more straightforward than buying as you cut out the process of securing a mortgage, so you may be able to relocate more quickly.
You don’t need a large deposit
You don't need to save up a large deposit to rent a property, which makes getting new premises easier – particularly for smaller businesses. If your business has good cash flow, you could end up renting a great space that you could never afford to buy, boosting the image of your business.
You will be subject to conditions
As tenants, you will be subject to the conditions of your landlord. You may need to pay for repairs where you are on a 'full repairing' lease, and any changes you make could add value to your landlord's property at the expense of your business.
Whether you choose to buy or rent a commercial property will depend on your specific needs and circumstances. Get in touch with David Grove on 01902 578085 or email email@example.com for more advice on your options to ensure you make the move that is right for you.