Buying or renting an office space is one of the most significant financial decisions any company will ever make. Whether you’re starting a new business or expanding your organization, you need to carefully weigh the pros and cons before looking for office space for lease or commercial property to purchase.
In the Philippines, prime commercial office spaces are readily available, so most companies are just leasing their offices. Business districts such as Makati, Fort Bonifacio, and Ortigas Center have a wide variety of reasonably-priced office spaces that both local and multinational businesses can take advantage of. Build-to-suit lease features also enable businesses to quickly start or resume operations.
But, before you hastily decide, be sure to assess and evaluate your business goals. Having defined business objectives is a good starting point, as it will help you determine what’s right for your company.
Here’s a comparison guide that will help you decide whether buying or leasing an office is more appropriate for your business.
Buying an Office Space
Buying an office space entails high upfront costs that you may or may not have in the beginning. However, when you buy office space, you’re not just investing in your business. You’re investing in a commercial real estate that will potentially increase in value. Your monthly payments will go to an asset that you can sell in the future, further adding value and security to your business.
When you own the office space, you don’t have to worry about having to move should the landlord have other plans for the building you’re occupying. You can also renovate the office space as you wish.
If you know that you have enough capital to purchase commercial property and have enough left over to build and grow your business, then buying an office space may be a smart decision.
You can even put up your spare office space for lease to help you generate extra income or at least cover your monthly mortgage. There are also associated costs when you own and run a commercial property that may make you eligible for tax deductions such as mortgage interest, property taxes, or other incentives.
On the other hand, buying an office space requires high upfront costs. Not only do you have to pay for the cost of the commercial property, but also for appraisal and maintenance costs, property taxes, renovation or property development, and more. This means that a considerable chunk of your capital will be tied up in your property.
When you own a commercial property, you’re also responsible for the property insurance costs, as well as the ongoing maintenance and repair of the building and facilities. These could be costly if something were to go wrong.
Instead of focusing on the core business function of your company, you also need to hire a team that will keep the property in tip-top shape, not to mention external events that can cause your property value to decrease.
As your company grows, your business needs may change. Space you initially bought may not be enough to accommodate the growing needs of your business.
Owning a commercial property may hinder you from scaling up. You may have to move to another office space, forcing you to sell your property and liquidate, which isn’t as easy as you may think.
Leasing an Office Space
Finding office space for lease provides your business a chance to position your business in a prime location that can contribute to a more sophisticated brand image. Most prime areas have already been bought and developed by real estate companies for the primary reason for renting them out to businesses. A desirable location that is easily accessible to both your clients and employees will be better for your business.
Because leasing office space is more affordable than buying a commercial property, your business capital is freed up. This allows you to allocate your funds to other areas of your business that will help your company develop, grow, and expand such as employee training, marketing, and other expenses.
Choosing to lease a space with excellent office interior design also reduces business expenses associated with initial renovations, office-fit out, and equipment. You can move in as quickly as you need to, making sure that you can immediately start business operations.
When you’re renting office space, you don’t have to worry about the time and money it takes to maintain your facilities. For instance, if the comfort rooms aren’t working, the property owner is responsible for fixing it. Most office spaces for lease also provide 24-hour security, which is one less thing to worry about.
Leasing an office space also allows you more flexibility. You can quickly move to a new office as your business grows. The downside is that your landlord or property owner may force you to move to another office when your lease expires even if you don’t have to just yet. You may also be subject to annual rent increases.
Factors to Consider When Deciding Between Buying or Renting an Office Space
There are pros and cons to each option, but businesses have individual requirements and needs, making it crucial to carefully assess and evaluate the different factors involved when deciding between buying and leasing office space.
If you’re planning to purchase office space, you typically need to pay a down payment of 20% of the total property value and a monthly amortization, depending on your loan terms.
When leasing office space, you don’t need to shell out nearly as much. You just need to pay a couple of months of deposit and another couple of months of advance rent depending on the lease terms.
Determining your cash outlay is crucial when deciding between buying and leasing office space. Some companies choose to purchase a commercial property but fail to operate as real estate owners efficiently because they don’t have enough budget and workforce for property improvements, maintenance, and repairs.
Buying an office space is a huge commitment. If your company is still relatively small and just starting out, then finding office space for lease is your best option.
First, you may not have the cash outlay requirements to purchase commercial space. Second, your business may grow sooner than later.
The stage of your business development is another critical thing to consider. Evaluate your business plan and examine the long-term goals of your business.
Do you plan to purchase equipment that are hard to move or need to be fixed in one location? Is your business plan pushing for a high growth rate that requires you to be more flexible in terms of location and facilities?
These are the things you need to consider ensuring that your business goals are aligned with either purchasing or leasing office space.
Leasing an office space allows your business to be more agile, flexible, and scalable. With current innovations of office space lessors, you can quickly begin operations.
Office space for lease with a build-to-suit term, for instance, allows you to immediately move into a fully-furnished office that is designed according to your company’s unique brand personality and values. More importantly, you’ll have a business address within the Metro’s prime locations, further boosting your brand image.
Jen spent six years in real estate, with three years in commercial leasing and facility management. She is now the leasing director of Figari handling leasing and business development. Her charisma and dynamic attitude certainly make her the life of the party. In her free time, she enjoys going to the beach and getting a tan.