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Should You Own or Lease Commercial Real Estate?

Should You Own or Lease Commercial Real Estate?

Evaluating whether to buy or lease commercial real estate

Evaluating whether to buy or lease commercial real estate is an issue that often comes up among our clients. Long-term cost is only one of the considerations when determining which is the best route for your business.

Some classes of commercial real estate naturally lend themselves toward leasing. Few, if any, owners of stores in malls own their space. Yet, if your business is on a separate, definable and transferable parcel that has a tax bill, how do you determine whether it’s feasible to own your business property?

General rules on whether to buy or lease cross all classes of commercial property, but as individual situations vary, it’s always a good idea to consult  your CRE brokerage firm before choosing an occupancy type.

Owners of commercial real estate generally have several characteristics in common. They are closely held entities, often small C corporation, S corporations or LLCs, all of which can benefit from depreciation on real property. For many such businesses, the decision to own or lease becomes a matter of paying rent to a third party, or paying it to themselves. Their space needs are also stable, with no short-term anticipated growth or downsizing. These businesses also have specific facility needs such as food processing equipment or other capital-intensive investments.

On the other hand, companies that lease properties often have widely fluctuating space needs. Successful start-ups fall into this category. Businesses like warehouses and other logistics providers that occupy properties with an abundance of locations also tend to lease because the wide choice of buildings that suits their needs tends to keep rents low.

Contact us today to determine whether buying or leasing is best for your companies needs and to learn about suitable Houston area properties.