The Value of Leasing Commercial Business Property
While landlords have been known to increase rents and common area maintenance expenses at rates that exceed their true operating costs, you may be getting a better deal with a third-party landlord as opposed to buying a property and incurring the expenses yourself.
When comparing the cost of buying a property to the cost of leasing, it is important to include the operating expenses that come with owning a property.
There are routine maintenance expenses, janitorial service expenses, trash removal service expenses, utility costs, and many more services that your landlord may be including in the full-service rental rate.
The true cost of commercial property ownership, on a per square-foot basis, may exceed prevailing market rates for full service leases.
There Are Opportunity Costs to Buying Rather Than Leasing Commercial Property
While there are programs available for small businesses to buy real estate with a minimal down payment, you will still need to put up equity if you decide to purchase a piece of commercial property.
Investing this cash into a property rather than into your business has an opportunity cost. If your business is generating a return on equity that exceeds a realistic return you could generate on a commercial property investment, it may make more sense to rent rather than buy.
There is also a time opportunity cost when buying over leasing commercial property. Owning your business real estate requires an additional time commitment. This time commitment extends beyond the purchasing stage and may come at the expense of effectively running your business at its maximum potential.
Leasing Gives You More Location Options Over Buying
If your business needs space in a central business district, it may be possible that you will not be able to find a property to purchase. Retail space in downtown areas is typically a portion of a larger property. While there are occasionally retail condos at street level, unless you want to buy an entire multi-story building, you may not find a restaurant or retail space available for purchase.
Leasing space gives you more options for a location that fits the needs of your business. Instead of buying a building in an out of the way location, you can choose to lease space that is centrally located allowing you to maximize the potential of your business.