In a hot market high office lease rates make companies want to buy vs lease office space. The decision of whether to lease vs buy depends on your existing situation as buying office space does not make sense for everyone.
In most cases it makes sense for newer companies or startups with a lot of growth potential to lease office space. If you are an existing, stable company then buying office space may make more sense
Again before pulling the trigger you need to weigh your options first. You may initially think buying makes more sense however after doing a lease / buy analysis you realize leasing is better……..and visa versa.
Below are a few things to consider as you determine whether it makes sense to lease or buy your office space:
Up Front Costs
When leasing office space all you typically need is a security deposit equal to one months rent. That could be more if you are a startup or newer company.
When buying office space you will incur a higher upfront cost (e.g. down payment, closing costs, environmental studies and other inspection fees, surveys, appraisals, build out costs, etc.)
Finish Out Costs
When leasing office space you ideally would like to find a move in ready space however in most cases the spaces will need some improvements. Landlords will typically give a tenant improvement allowance to build out the space, however if your build-out is extensive and/or above standard you could end up having to come out of pocket to above and beyond what the landlord is willing to give.
If you purchase more than likely the space won’t be exactly the way you want so you will have to fork out additional cash or roll into the loan a certain amount to cover the construction expenses.
Most office space leases are 3-5 years which means if your company needs to expand or downsize you have the ability to relocate or easily take more space. Also you can negotiate a sublease provision that would allow you to sublease any excess space that you have. It’s hard to predict what your space needs will be 2-3 years from now so if you plan on growing leasing might be a better option.
If you purchase you don’t have the ability to easily expand if you run out of space and if you have excess space you end up having to eat the costs. Also you could sell the property however the process could take 30 to 180 days or more depending on how the office space market is in your city.
When leasing the landlord takes care of all the common area maintenance and repair and upkeep of the property. If you purchase you will be responsible for all of that. For some its a real time suck. Just keep that in mind as you make your decision. Do you want to spend a lot of time fixing your office building or making money in your software business.
If you are contemplating buying vs leasing office space feel free to give us a call. We can learn more about your existing situation and do a lease vs purchase analysis to determine which option makes more sense for your company. You can contact us at Austin Tenant Advisors or 512-861-0525