Planning for commercial real estate needs can seem intimidating. Fortunately, at 616 Companies we provide guidance to business owners so they can effectively navigate their next commercial real estate transaction.
A question we often receive from business owners is “should I buy an existing building, buy land and build a new building, or lease space?”
Our answer to this question is often tailored on where in the business lifecycle the business lies.
Below, we list considerations for each decision, and we encourage you to continue reading if you are a business owner pondering this question.
BUYING CONSIDERATIONS
Purchasing commercial real estate is a long-term investment that offers stability, equity growth, and tax advantages. This option is ideal for business owners who have predictable space needs, financial stability, and a long-term vision for their operations. While buying requires upfront capital, it provides control over the property and potential appreciation over time.
Predictable Space Needs – Your business is established and understands its business needs on a going-forward basis.
Looking to Invest Cash – Your business has seen success and is looking for ways to reinvest into the future of the business and build equity.
Tax Benefits – Your business has passive income and can deduct passive activity losses from owning real estate.
BUILDING CONSIDERATIONS
For businesses with specific space requirements, location requirements, or a strong brand identity, constructing a new building may be the best path forward. This option allows for complete customization, ensuring the space meets operational needs from day one. However, building takes time and requires careful financial planning to balance costs and long-term benefits.
Unique Space Needs – If your business requires unique space needs and floor plans, building may make the most sense.
Unique Location Needs – If your business requires a specific location where existing real estate is not readily available, building may be the best or only option.
Ability to Build – Building is often more expensive than buying existing buildings, but building can provide business image benefits that buying existing may not.
Timing – Development and building takes patience and time. If your business has immediate needs, building may not be suitable for you.
LEASING CONSIDERATIONS
Leasing offers flexibility, lower upfront costs, and the ability to test a market without the commitment of ownership. It’s often the preferred choice for businesses in growth mode or those uncertain about their long-term space needs. While leasing does not build equity, it allows business owners to allocate capital toward other areas of expansion.
Flexibility – Lease agreements are highly customizable and can accommodate a growing business with unpredictable space needs.
Testing New Location – Leases provide a business owner to test a new market without a long-term commitment.
Cost – Leasing often costs less than owning real estate, but you will forgo building equity by leasing.
ADDITIONAL CONSIDERATIONS
In addition to the above considerations, each business has unique needs from both a space and a timing perspective. The key is to understand how real estate fits within your business needs and proceeding on an informed basis.
We would love to have a conversation with you to better understand your needs. By discussing your needs with professionals who understand brokerage, architecture, and law, we can establish a plan that best suits you and your business.
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