As the owner of a growing business, the time will come when you have to decide between renting or buying an office space. This decision is now harder to make given the pandemic and the uncertainty it brings. As the workforce moves to a remote setup, property prices skyrocket and local economies are volatile, does it still make sense to invest in a physical office?
We’ve compiled a list of considerations to ask yourself when deciding to either rent or buy an office space:
1. Your Budget And Ability To Fork Out Cash
There are high upfront costs involved with purchasing an office space in Singapore – large down payment, stamp duty, property taxes and maintenance costs. Whereas with a rental space, you can invest money into the growth of the business as there is no down payment and you’ll know exactly what you need to pay each month without the worry of unanticipated, expensive repair costs.
2. What Would Benefit Your Business More: Cashflow Or Equity?
While a well-positioned real estate investment can yield large returns over time, you would have to determine if your business can service a long-term commitment. If cash for investment is limited, it would be wiser to invest in the business rather than an office. Keeping up with a high overhead cost especially during the unpredictability of the market in the new normal is an unwise decision. Only invest in real estate if you have the additional cash flow.
3. How Fast Is Your Company Growing?
The growth rate of your business would determine the amount of flexibility needed and therefore if you should rent or buy an office. If you growth predictions are fast or uncertain, it would be better to lease a space with options to expand the space or relocate when the lease is over. If you choose to buy the space, ensure you factor in space for future growth.
4. Does The Office Location Matter?
If your business requires a prestigious address or needs to be in a strategic location, it would most probably be located in a prime area. In Singapore, prime office buildings are owned by developers and are only available for rent. This is not a bad option as renting is a cost-saving way for you to get access to prime property if buying commercial property in a high-end area is off the cards.
5. What Are The Conditions Of The Local Economy?
The pandemic has made local economies volatile, so it would be necessary to educate yourself on the changes real estate, the job market, and overall business implications before deciding to put roots down in a physical location. An office with flexible lease terms would be more favourable than buying a space given the uncertainty.
The Final Decision
Although there are no rules to predicting the ideal time to rent or buy an office space, understanding your business needs and how it will grow in future will help you decide.
If you have a clear business growth plan, and have a good grasp of the type of space that suits you and the real estate market, then don’t rule out the possibility of buying if property prices are attractive.
However, if the future seems uncertain and you are wary about making a large upfront investment, then opting for the flexibility of renting might be a safer bet.