Commercial Space: Should You Build or Lease?
As a business owner, one of the questions that continues to rear its head is whether it is better to build or to lease your property.
There are many factors involved in such a decision. Should you take capital and lock it into a down payment on a mortgage, or keep it available for inventory? On the other hand, leasing costs can be high depending on where you are and lower mortgage payments on a new build may free up extra capital for inventory, advertising and expansion.
Location: is your business location-dependent? By this we mean would being in a particular location dramatically impact your revenue potential? Leasing means going where the properties become available. This could be good (in an established neighbourhood where there is no more room for new builds) or it could be limiting (when the good neighbourhoods have no empty buildings available for lease). You have to make quick decisions with little time when a good location opens. On the other hand, building your own space means having the time to plan and find the best location for your business.
Layout: How important is the layout/configuration of your space? Leasing means fewer options in this regard. You get what is available. On a build you have the opportunity to be creative and build the best space for your business to maximize your potential profit.
Leasehold Improvements: Sometimes you get the opportunity to invest in a leased space to make it as close to your business vision as possible. The question is how much is too much? Most of what you invest in a leasehold does not go with you if and when you move…it stays with the building which means your investment stays there too.
Investment: Just like when you are considering building versus renting a home, you need to consider how important building a space versus leasing is to your investment strategy. Building a space means building equity. Building equity can be VERY important to your business because it can make it easier for you to negotiate a loan in the future. Most businesses go through periods of either drought or expansion – both of which often require access to ready capital.
Entrepreneur – Most business owners are entrepreneurs who want to be their own bosses. Leasing means having to deal with a landlord. While most landlords are great people, having one means this substantial part of your business is not entirely in your control. A good relationship with your landlord (and a good contract) is important.
Timing – If there was ever a perfect time to build, now might be that time. Interest rates are at near record lows making loans and mortgages extremely appealing and providing a great opportunity to build the equity we spoke about earlier.
There are many reasons why leasing may be your best option. New businesses with little upfront capital to invest may need to lease at first. However, as you grow your business you may want to take greater control and develop equity to fuel even greater growth and development down the road.
If you are contemplating a new location for your business, give Hive Development Group a call. We will work with you to find, design and build the best possible space for you and your business. And if you are looking to lease, we may also be able to connect you with a great future landlord. Building our business community - it’s what we love to do!
Visit www.hivedg.ca for more information.