The prospect of businesses owning versus renting their office space has become more attractive as leasing prices have increased over one-third since 2010. Also, a sliver of good news exists in interest rates continuing their decline.
Under a rental agreement, landlords have the advantage of negotiating initial and continuing leases that build in new rights for them. As time goes on, ownership becomes a more valid option over continuous negotiation of new leases with increasing square footage rates.
A company is empowered when securing a permanent home. Tipping the scales in their favor allows them to customize their operation, adding various amenities for employees that would not be available under the auspices of a lease.
Simply put, ownership is a valid cost-saving option. However, a drastic change requires business people time for soul-searching to ensure that buying is best. Certain factors should be in play, including:
- Profitability and cash flow that keeps debt at a minimum
- Assessing staffing levels now and in the future before selecting a space that adequately houses all employees, while leaving some room for new hires
- Tax advantages by building equity that appreciates while property depreciates.
Naturally, fronting a significant amount of money towards the purchase of a office space sacrifices the liquidity of a company to the tune of 10 to 25 percent of the average purchase price. In addition are the costs associated with closing the deal, repair costs and moving expenses for existing tenants.
Owners may know all aspects of their operations, but they need to expand their circle and retain seasoned professionals in accounting, lending, real estate, and the legal field. While they know the operations of their business, they must place their trust in others with specific expertise and skillsets to secure the future of their operation.
Any aspect of being an entrepreneur represents risk. A boom today could be a bust tomorrow. However, smart investment and cost-saving decisions can make the difference between success and failure. Retaining a real estate attorney can be an important first step.