To Buy or to Lease Office Space? That is the Question.

The pros and cons of buying and leasing office space.

If you’re considering new office space to upgrade, downsize, relocate or expand your business, you’re faced with making one of two choices: purchasing a building or leasing space in one that someone else owns. Which one is right for you and your business?

Your decision ultimately comes down to your business finances and a realistic plan for where it’s heading over the next decade. Here are a few other things to consider:

Advantages of Leasing

• Tax deductions. If you lease commercial office space, you can deduct lease payments on your taxes, saving you some money on the back end.
• Repairs and maintenance. When you lease, the landlord is typically responsible for keeping your building in good shape and working order. Be sure to clarify who is responsible for repairs and maintenance when you enter lease negotiations.
• Location, location, location. Leasing in prime business corridors can be a lot less costly than buying in these areas.

Disadvantages of Leasing

• Lease increases. When you lease office space, you may be subject to annual or term lease increases that are out of your control and hit your bottom line. Be sure to discuss lease increases with your landlord when entering lease negotiations.
• Lack of control. If your aesthetic is modern, but your landlord’s is mid-70s department store, your surroundings may not adequately reflect your brand or feel like “home.” As a tenant, you might not have a say in property improvements and decor.
• Growth concerns. If you plan to lease office space in an existing building, discuss the potential for future expansion and growth with your landlord. Many building owners are more than happy to accommodate and plan for future growth and changing space needs.

Advantages of Buying

• Tax deductions. Although you can’t deduct full mortgage payments on your taxes, you can deduct your mortgage interest payments. Every little bit helps.
• Build equity. When you buy, you’ll build equity, which can be used to grow your business in the future.
• Income potential. If your building has more space than you need right now, you can rent out the extra space and pay down your mortgage more quickly.

Disadvantages of Buying

• Loss of flexibility. Your business – and business needs – will change over the next decade, from fluctuations in staffing and client loads to course corrections in business strategy. Owning a property can tie you to a location and decrease your flexibility.
• Building Maintenance. If you’re a business owner, you already expend a lot of time and energy on maintaining and building your business. Add the stress of maintaining a building to your to-do list, and you’ve more than doubled your commitment.
• Financial commitment. Purchasing real estate is a major financial commitment requiring a hefty down payment. If your business will take a hit due to a shift in resources, buying might not be your best option.

If you’re thinking of buying or leasing your next office space, contact The Anderson Group. We provide full-service commercial property management and office space leasing – from general facility management and maintenance to housekeeping, landscaping and office space planning.