Should You Purchase Office Space?
The burning question for many business owners approaching the end of their lease is whether it's the right time to purchase commercial real estate. Does your office expansion warrant it, or would you be better off leasing? The answer, as you might have guessed, isn't exactly a simple one. Determining if leasing is more suitable than buying depends on several factors. Here are a few basic considerations to help you arrive at your decision:
A Question of Cash
Your first consideration should be how much cash your company is willing and able to spend on commercial real estate. Buying office space requires enough capital to be able to lay out a substantial down payment, as well as costs associated with loan fees, property appraisals and inspections. A lease will cost you far less in the short term, so the decision between leasing and buying is one that will be made based on how much cash you have on hand.
Leaving Room for Growth
Then, of course, there's the question of office expansion. Unless you're steadfastly determined not to expand beyond a certain point, your company may experience significant growth that could be hampered if you opt to purchase commercial real estate that meets only your current needs. If the capital exists to buy into a much larger property that gives you room to grow, you'll be primed for expansion. But that's not always realistic, either. If you opt to buy more office space than you need instead of leasing , you could be tying yourself down to a piece of property that you'll later have trouble filling.
Predictability
The roller-coaster of economic events over the past decade has shown us that there is, unfortunately, very little we can accurately predict. But this should not stop you from trying to establish permanence where you can. By buying, you're ensuring a fixed cost for your property, especially if you're able to nail down a fixed rate on the loan terms. A lease, on the other hand, is only a temporary agreement that puts you in the unstable position of possibly having to pay more on its expiration—regardless of whether you decide to renew or look for another location. In fact, depending on the terms of your lease, you could be subject to price increases prior to the lease's expiration.
Depending on the availability of commercial real estate in your current geographic market, there could be some incredible opportunities for buying cheap and selling at profit down the line. In the end, it might be advantageous for you to seek professional advice to help you arrive at your decision. Getting connected with a professional broker will not only give you the opportunity to explore your options, but will also ensure that you receive counsel rooted in years of experience.
About the Author: John J. Culbertson
John J. Culbertson is a CRE, SIOR, and CCIM-accredited investor, broker, and expert witness. He regularly writes about commercial real estate, development, and life as a real estate entrepreneur. John began with Heitman as a developer 25 years ago, followed by a long tenure with Trammell Crow as a developer and broker. Having co-founded Cardinal Partners12 years ago, John has now partnered with Brennan Investment Group as an investor while continuing to grow Cardinal Partners as a broker and consultant.
