Office Space: Rental vs Purchase
If you’re looking to move office, you may wonder whether leasing or purchasing your new office is better. This is an important decision, as it will have a big impact on your finance plans over the coming years. It can also be a complex decision, with many different factors affecting what is the best option for you.
We’ve been helping companies across the UK with workspace strategy and office relocation for 15 years. In that time, we’ve completed projects in both rented and owned buildings, and have helped numerous companies decide which is best for them.
So which is the best option for you? Unsurprisingly, it depends. In this article, we’ll take a closer look at the pros and cons of each option. By the end, you'll have a better understanding of the factors that impact this decision, and you'll be better prepared to make the right decision for your company.
Leasing Office Space
Advantages Of Renting Office Space
The greatest advantage of leasing is the lack of upfront cost. While you may need to pay 6 or 12 months’ worth of rent before moving in, this is a small amount compared to the cost of purchasing. The lower upfront costs may mean you can afford office space in a higher quality location where you could not afford to buy. Landlords are also responsible for most maintenance and repairs, saving you time, hassle, and cost.
Another benefit of leasing office space as opposed to outright purchase is the improved flexibility. Most lease terms last 5-10 years. Many leases also have 1 or 2 lease breaks – predetermined points during the lease at which either party can end the lease. As a result, it is far easier to move office if your requirements change. This can be especially valuable for fast-growing companies.
Disadvantages Of Renting Office Space
Much like outright purchase, leasing office space also has its downsides. The first is that you will have much less control of your space. If you want to refurbish your office you will have to get formal approval from your landlord before you can begin, and they may place certain restrictions on the work.
In addition, you cannot end the lease whenever you want. You will be constrained to predetermined lease ends and lease breaks. While moving office is more complicated, you can begin the process whenever is right for you.
Another drawback of leasing is that the monthly or quarterly rental costs will soon mount up. Depending on the location of your office, it may only be 10 or 15 years before you have spent more in rental than you would have in an outright purchase. As you are renting your office, this will be an expense rather than an asset. In addition, rent can fluctuate over time in a way that mortgage repayments would not.
Buying Office Space
Advantages of Purchasing Office Space
The biggest advantage of owning your office is that you have an asset that increases in value over time. Over the last 20 years, commercial real estate prices have increased by nearly 250%. If you were to purchase an office building now, it would almost certainly grow in value significantly in the future. As a result, your company’s asset portfolio would improve.
Owning an office also gives you more stability. As you don't have to get landlord approval for anything, you have much more control over your space. This means you can refurbish or reconfigure your office whenever you want, without having to ask permission from your landlord.
Disadvantages of Purchasing Office Space
However, there are also downsides to owning your own office space. Purchasing an office space is a huge upfront cost. This is especially true if you are looking for an office in a premium location, such as central London. Many companies do not have sufficient funds for such a large cost, which is why leasing is more common.
If property prices fall, your asset base would be eroded, leading to a lower company value. You will also be completely responsible for the maintenance and repairs that your office needs. You won't be able to leave resolving such issues to your landlord.
The stability that is provided by owning an office can also become a disadvantage if your workspace needs change. An office is much slower to move out of than a leased space, as the sale process is complex. If your business grows rapidly, you may need to lease or purchase more office space, separating your team. Even worse, if your team shrinks, you may have too much space, and be stuck with an expensive office that you don't need.
Making Your Decision
So, should you lease or purchase your office space? Ultimately, there is no one right answer. It depends on your company’s workspace needs, available funds, and growth trajectory. If you are an established and stable company with available funds, then the improved control and equity of purchasing may be best for you.
On the other hand, if you are growing fast or require an office in a prime location such as central London, then leasing will likely be more appropriate. This is a big decision with major strategic, financial and legal ramifications, so you should consult with a qualified expert before making your decision.
To get the full breakdown of everything you need to know as you plan your office move, download Your Ultimate Office Relocation Guide. It's a comprehensive guide that will help you understand everything that goes into an office relocation, what it costs, and how long it will take. Download your relocation guide here.
To learn more about office ownership models and choosing the best one for you, read Coworking v Serviced v Lease v Freehold Office - Which Is Best For Me?, Serviced vs Leased Office Space: Which is Best? and Cat A vs Cat A+: Which Office Lease is Right for Me?
