Commercial Real Estate: Lease vs Buy

This is a dilemma that troubles every person who is scouting for a property in commercial real estate industry. Of course, cost of the property is an important parameter for consideration, but you should also weigh other pros and cons of buying vs leasing a property.

Let's take you through their advantages and disadvantages to help you make the right and smart choice.

Lease

Pros:

• Get Prime Location of Your Choice at Lower Cost: When your office is located in a central business district or prime commercial area of the city, it boosts the visibility and credibility of your business. However, commercial spaces in these areas fetch a hefty purchase price. If you need an industrial property with warehousing space and situated near major docks, highways, airports or railways to receive, ship or distribute your products, then a leased property is a more affordable. A pre-leased property can be your saviour because you not only get to choose your favourite location, but it also frees your working capital.
  
• No Administrative Hassles: Properties require routine repairs and maintenance. There are also tax formalities to be taken care of. The administrative adherence in case of industrial properties is even more rigid and time-consuming. It can be a headache and also create a dent in your revenues. When you lease a property, the administrative responsibility usually lies with the lessor, unless otherwise agreed in the agreement.
  
• Flexibility: If you outgrow your leased office space and want to shift to a bigger property, it wouldn't take much time. All you have to do is inform the landlord and adhere to exit terms in the rental agreement. No worries about putting the property on sale and waiting for months to years to recover your investment!
  

Cons:

• Lack of Exit Clause: While the lessor cannot ask the lessee to vacate or for that matter, lessee cannot terminate the agreement before the lease term is over, there is always a possibility of a deceit. If there is no provision about early exit or damages for the breach, it could be a legal trouble.

Buy

Pros:

• Asset Appreciation: Usually, the prices of commercial real estate properties rise periodically. If you buy one, it will always show as an asset in your account books and you can earn a capital gain on it.
  
• Rental/Sub-letting Income: In case you decide to move out of your property for some reason, you can always rent it. Or, if you have unused space, you can sub-let them. Either way, there is a potential to earn monthly income on your office or industrial space if you don't want to sell it.
  
• Stability: There is no landlord to throw you out! This is your very own property and no one can lay a finger on it. You don't have to go through the hassle of renewing the lease or returning the property in the original condition.
  

Cons:

• Tied-up Capital: Whether you pay for commercial property from business money or through a loan, it blocks the capital to that extent. If the property value declines or interest rates on loan rise, then it is certainly a loss.

The decision to buy or rent a commercial real estate property depends entirely on the availability of funds and existing as well as future business requirements. Just make sure to lease or buy properties only from trusted commercial/industrial real estate developers in the market.