The Pros and Cons of Leasing Commercial Real Estate



When you want to start your own business, or move into a new property, the question arises as to whether you should lease or buy. Which one is better? The answer is that it depends on your circumstances. Let’s look at the benefits and downsides of leasing real estate so you can decide whether it is the right option for you.

The Benefits of Leasing Commercial Real Estate
You can often find commercial real estate, sign a lease and move in within a day or two. There is no closing process; you just need to pay rent and a deposit. Then you can move in and start getting down to business, literally.

You can find a cheap location now to rent and move to a better location, whether larger or with more foot traffic, later on. If your administrative or storage needs increase, you might be able to negotiate a better rate for additional space on a higher story of the same building where your retail outlet is located.

Leasing doesn’t have upfront costs beyond preparing the space for retail or work and any deposits required by the landlord. There is no need for a large down payment, appraisal fees or possible repairs, all of which come with buying commercial property.
The landlord is typically required to pay the property taxes, utilities and maintenance costs. Fixing the roof or providing security is someone else’s problem.

According to professional commercial developer Douglas Ebenstein, “in a high traffic area or desirable location, leasing may be much cheaper than trying to buy a property in the area”, so this is something to keep in mind as well.

The Downsides of Leasing Commercial Real Estate
Rents are dependent on market demand. If demand for commercial real estate is going down, you may be stuck in a lease with a rental payment higher than a new tenant would pay. If rental demand is going up in your area, you could see double digit rent increases when the lease comes up for renewal. Even annual rent increases can leave you wondering what you’ll have to pay each month and wondering if you can afford it.

If you move your business because your lease isn’t renewed or you need to relocate for another reason, you have to update your business cards, business directory information and inform all of your customers. You run the risk of them having trouble finding you.

If you have to move each year as the leases increase beyond your ability to pay, you’ll be left trying to keep your customers and updating everything from business directory information to business cards. Your rent payments also build up someone else’s equity.

Long term leases offer the promise of protection from price increases and a guarantee that you’ll keep the same address for a long time, but now you’re at the mercy of the property manager to keep the area as attractive in a decade as it is today.

Whether you lease or buy is a decision that can only be made by you. However, many small businesses do prefer to lease at first, as it’s more affordable and can help them to test the market

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