To rent or buy retail commercial property ?
One of the cornerstone questions being asked by company owners is whether to lease from a lessor or whether to buy into a commercial property and conduct your business establishment from that property ?
The answer is not as simple as it may appear. Having an asset and paying off that asset may sound very attractive but it may be surpassingly tough to source such an asset. For a small business owner this may well be way beyond his or her resources since great positions are held by large property owners and the premises in these locations are generally speaking pricey .
The company owner need to ascertain his position regarding the following:
1. What need the exposure be that his/her company requires ?
2. Does he/she choose prime exposure ?
3. Does he/she demand a high feet count ?
4. How close is the placement of the property to the target trade of the company ?
These are all factors that has an influence on whether the business owner will buy into or rent a premises. Small properties are at large not available at prime addresses for sale, since they are, by and large, part of a large shopping centre where landlords specialize in purchasing and regulating the assets.
The company owner broadly speaking faces a dilemma whereby he/she cannot buy a sole property for their business establishment and generally ends up with a commercial property with his/her company together with other businesses. This results that the company owner need to perform property management duties. Property management duties are a discipline totally on its own and require specialized resources to do property management.
Company owners generally do not want to end up being property managers. Negotiating agreements, negotiating rental fees, handling tenant queries, resolving tenant complaints, maintaining the premises, ensuring the correct tenant blend, servicing the premises on a daily basis is not necessarily within the domain of a retail business owner.
Preferences do however differ and we do find that most company owners would rather let then buy property. The lease amount is seen as a business establishment expense which has substantive tax advantages. The business establishment owner is also at leisure to relocate his/her business establishment and not be bound by a fixed asset that cannot be moved. This has the advantage that should the demographics of a certain area change then the company owner can relocate his / her company by either negotiating with the landlord to cancel the lease agreement or by waiting out the remainder of the lease agreement and then not renewing for a further period.
A typical commercial property to rent for retail business establishment owners will not suit them to buy into the business establishment premises. A typical example will be a shop to rent in Pretoria, South Africa, where tenants are, by and large, looking at office space between 50 and 100 sqm. Looking at this centre it will not make sense for a business establishment owner to purchase. We thus conclude that it is better for a business owner to rent then to acquire.
Processing your request, Please wait....
