Should I rent or buy my commercial property?
30/09/2024
Deciding whether to rent or buy your commercial property can feel like a big decision. Renting gives you the freedom to move as your business grows, while buying offers stability and a chance to build equity. We’ve laid out the details to help you figure out which option is best for your business.
Renting
Access to prime locations
Renting a commercial property gives businesses the chance to secure a spot in prime locations that might otherwise be out of their financial reach. Areas with high foot traffic or popular retail parks often come with hefty price tags, making purchasing property in these locations tough. In many cases, even if you could afford it, there might not be anything available for sale.
By renting, businesses can get a foothold in these desirable spots without the huge upfront costs of buying. This can be a game changer for visibility, as being in a high-traffic area can naturally draw in more customers. Renting also gives you the flexibility to test different locations and adapt as your business grows, all while benefiting from the prestige and customer flow that comes with being in a prime location.
Tax benefits
One of the big perks of renting commercial property is that your rent payments are usually considered a business expense. This means you can deduct the amount you pay in rent from your taxable income, which can lower the overall tax you owe. In essence, this makes renting a bit more affordable, as it helps reduce the amount you’re taxed on.
In addition to rent, other costs related to leasing, like service charges or minor repairs, might also be deductible. However, larger expenses, like renovations or upgrades to the property, may not be. Understanding what you can and can’t claim can make a big difference to your bottom line.
Lower upfront costs
One of the biggest advantages of renting commercial property is that it requires much less upfront capital than buying. When you purchase a property, you're often looking at a large down payment, typically between 10% and 30% of the property’s value. On top of that, there are additional costs like legal fees, surveys and stamp duty, which can really add up.
Renting, on the other hand, tends to be far less of a financial burden at the start. You might need to pay a deposit or sometimes a lease premium but these costs are generally much lower compared to buying. This is particularly helpful for businesses that want to keep their cash flow healthy and invest in other areas, such as operations or marketing, instead of tying up large amounts of money in property. Renting offers a more flexible option, making it easier to get up and running without the financial strain that comes with purchasing.
Less risk
Renting a commercial property reduces financial risk. You’re not affected by interest rate rises and while rent may increase through periodic reviews, it's more predictable than mortgage fluctuations. Just ensure you understand how rent reviews work before signing the lease.
Renting also shields you from drops in property value, unlike owning, where you'd be affected by market changes. You’ll only face Capital Gains Tax if you sell your lease at a premium.
Buying
Value increase
One of the big advantages of buying commercial property is the likelihood that its value will grow over time. Instead of your landlord benefiting from that increase, as would be the case if you were renting, the value growth is yours to enjoy. This means that when the time comes to sell, you’re more likely to make a profit rather than face a loss.
Property values, especially in good locations or areas seeing development, tend to rise steadily. So, not only will your property likely become more valuable but if you buy in a desirable area, that increase could be even more significant. Owning the property means that any appreciation in value is yours, which can be a huge financial improvement when you sell.
Steady income
A big perk of buying commercial property is the steady income it can provide. Unlike residential tenants, businesses leasing commercial spaces often have more to lose if they miss a payment. Their business relies on having a stable location, which makes them more reliable when it comes to paying rent on time.
What makes it even better is that commercial leases are typically long-term, often running for several years. This means you’re not constantly chasing new tenants and you can enjoy a more consistent, predictable income. With long leases in place, you’ll have a better idea of your cash flow, which makes managing your finances much easier.
Subletting income
Owning commercial property gives you the chance to produce extra income by subletting unused space. If your business no longer needs the entire premises, renting it out to other businesses can help cover costs like mortgage payments and maintenance, turning idle space into a steady revenue stream.
Before subletting, it’s important to check your lease for any restrictions and find a reliable tenant that suits the property. Subletting allows you to keep earning from your investment while adjusting to changes in your business needs, making it a flexible and profitable option.
More security
Unlike renting, where you're always at the mercy of a landlord or lease agreement, owning means you’re in control. You don't have to worry about being told to vacate the premises unexpectedly or dealing with rent increases that could strain your budget.
When you own the property, there's also no need to deal with surprise visits from landlords or inspectors. It’s your space and you have the freedom to run your business as you see fit. Whether that’s making renovations, changing the layout or simply knowing you’re there for the long haul, you have the flexibility to create a space that truly works for your business.
In the end, it comes down to what suits your business best. Renting gives you flexibility and lower upfront costs, which is great if you’re just starting out or expect changes. Buying, on the other hand, can be a solid investment, offering stability and the chance to build equity. Whatever you choose, make sure it supports your business’s growth and needs.
At Merrifields, we offer the management of both sales and lettings for commercial properties. Contact us for more support, or alternatively, see our current available listings here.