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Renting vs Buying - Commercial Property

Choosing whether to buy or to rent your business premises is an important decision - especially as your premises may turn out to be your largest fixed asset - and can easily become a difficult choice to make.

Before committing to one option, all the pros and cons regarding both buying and renting should be considered, as what suits one business won’t necessarily suit others.

For example, it may be that the nature of the business makes the ability to change location quickly and easily an important factor.

Your business premises may turn out to be your largest fixed asset, making the choice of property an important one.

Renting

Generally, it suits new businesses to start off by renting a property as they may not have sufficient capital outlay, or have an opportunity to borrow capital from another source.

For businesses who can afford to buy commercial property from the start, spending large sums of money from their precious funds can seem foolish if it doesn’t leave much to fund the buying of stock, equipment and paying employees’ wages.

Renting provides total flexibility: the business can move to new premises at any time and with very short notice. As a start-up business you may find that renting commercial premises will be adequate until either the business grows, and expansion is needed, or an increase in finances enables you to purchase commercial premises.

Renting also takes away any responsibility for things such as maintenance, fixtures and fittings, decoration and security costs on the premise, plus you won’t be affected by interest rate rises and dips in the property market.

However, rent hikes are a possibility, so it’s always worth negotiating with the landlord and checking how and when the rent will be reviewed, prior to signing a lease.

Buying

Purchasing a property with a commercial mortgage will mean owning an asset that has the potential to increase in value. Mortgage repayments are likely to be similar to, or less than, rental payments and you will not being subject to large rent increases - providing more security.

One of the main benefits of having your own commercial property is the possibility of spare building space, which can then be sublet, enabling the business to recoup some of the outgoings and possibly leading to extra income .

It is also worth bearing in mind that the interest payments on a commercial mortgage are tax-deductible and any increase in the value of the property will result in an increase in the value of your assets.

However, unlike renting, you'll need to come up with a considerable deposit that could be used for other, more pressing business purposes. In addition, owning a building premise will make it far harder to relocate the business. Getting out of a rental agreement is a far easier task than selling premises or finding a new tenant to take them over.