Category

Tips

Date

28 April 2020

Renting an Office Space vs Leasing an Office vs Buying an Office

As a business owner, you may be thinking about getting an office and one of the biggest decisions you will make is choosing between renting an office space or leasing or buying an office.

We’ve been selling and leasing offices in Perth for over 30 years and have extensive experience helping business owners make the right decision for their business and their finances. We’ve listed the pros and cons of renting an office space vs leasing an office vs buying an office, to help you decide which is the right option for your business.

Renting an Office Space

Renting an office space usually refers to a short term lease for one office or desk in an existing office complex. You’ll have the option of “hot desking”, “co-working” or renting an office for yourself.

The facilities will depend on each office space but can vary from large offices with views in high rises in the CDB to communal areas where you can use any available desk. Office space rental prices will vary on the type of office space, the building, facilities and amenities with rental terms from 1 hour to 1 month.

Pros of Renting an Office Space

• Flexibility: You can rent an office space in Perth by the hour, day, week or month.
• Availability: Most office spaces for rent that are listed are usually available immediately.
• Only Get What You Need: You don’t need to think about the office space size you’ll need in 6 months or a year. Only pay for the office space you need right now.
• Networking Opportunities: If you choose co-working with others or hot-desking, you’ll have the opportunity to meet other businesspeople and build your network.
• Amenities Are Provided: Most office spaces for rent come with printing facilities, coffee/tea and internet.
• No Maintenance Costs: You won’t need to pay for a thing but your rent. Everything else is paid for by the owner.
• Low Commitment: You won’t need to commit to a year-long contract. The longest commitment for short term office space is a month.
• Central Locations: By renting an office space, you’ll be able to choose a location that would otherwise cost a lot more to lease or buy. This is a huge pro if you need to have meetings in a CBD.
• Less Responsibility: You’re not responsible for anything apart from your rent costs. You can focus on your business and not maintaining the office.
• Tax Deductions: The costs of renting an office space can be tax-deductible.

Cons of Renting an Office Space

• Shared Office Spaces: Renting a shared office space means you can have other people in the same room or even on the same desk. This could be a distraction or impact your productivity.
• Less Control: You’ll be at the mercy of the environment in the office space, this could be noisy people in the hallways, music from another room, untidy areas, low internet speed or poor lighting.
• No Branding: Because of the short rental lengths, landlords will be reluctant to add any signage to the office.
• No Power: Owners can decide not to offer renewals or rental extensions of the office space without warning.
• No Equity: You’ll be spending money on your business but it will be going straight to the office space owner and not building equity for you.

Leasing an Office

Leasing an office refers to long term leasing of a whole office building, multiple floors of offices within a building or a suite within an office complex. It will usually include private amenities and facilities like parking, toilets, storage and kitchen.

Lease terms are negotiable but are usually between 6 months and several years, providing businesses with security that they can occupy that office for a long time.

Pros of Leasing an Office

• Stability Without a Large Financial Commitment: Leasing an office will allow you to secure an office for years without having to outlay the high cost to buy an office.
• Low or No Maintenance Costs: The owner will bear most if not all of the costs for repairs, upgrades and ongoing maintenance.
• Tax-Deductible Lease Payments: Your payments for leasing an office can be tax-deductible
• Prime Locations:Lease an office in a prime industrial location or CBD, at a fraction of the cost of buying an office.
• Can Be Cheaper to Lease Than Buy: Depending on the commercial property market, it may work out cheaper to lease an office than buy one.
• Easy to Leave: If you’ve outgrown the office space or need to change for another reason, you can exit at the end of the lease without the process of selling an office property.
• Branding and Street Presence: You’ll be able to negotiate with the owner to add your signage to the building and your office.
• Free Up Cash for the Business: Avoiding the large financial commitment of buying an office will keep cash available to spend on your business.
• Choose a Long or Short Term Lease: You’ll be able to lease an office with contract length that suits your business.

Cons of Leasing an Office

• Increase in Lease Payments: It’s fairly standard for your lease payments to increase either after a certain term or if you choose to renew the lease.
• Owner Has the Power: The owner may choose not to renew your office lease and you’ll be forced to move from the office.
• No Say in Repairs and Maintenance: The landlord has the power to determine which repairs are done and when.

Buying an Office

Buying an office can be a whole office building, multiple floors of office within a building or an office suite within a complex.

Buying an office gives you full control of the property but can cost significantly more than renting an office space or leasing an office.

Pros of Buying an Office

• Build Equity: Owning an office will become one of your largest assets and you’ll be able to borrow against the equity of the property.  
• Capital Growth: The value of the office will grow with the property market.
• Freedom to Make Changes: You’re in control of everything and develop the property as you see fit. No more landlords.
• Expanded Income: Lease out extra space in the office or the entire office if you decide to relocate.
• Steady Payments: Your mortgage payments will be steady as opposed to increasing office lease payments.
• Tax Deductible: Interest payments and depreciation are tax-deductible.

Cons of Buying an Office

• Large Upfront Costs: You’ll be paying a significant amount to buy the office as well as taxes and fees.
• Less Cash for the Business: The money you spent buying the office could have been used for other areas of the business.
• You Pay for Everything: You’re the landlord, all fit-outs, repairs, rates and maintenance costs are paid by you.
• Lack of Flexibility: You’re financially invested in the office and can’t relocate as easily as renting or leasing an office.
• Financial Risk: If you can’t afford the cost of the office, you may put your personal assets at risk.
• Selling Could Be Slow: There’s no guarantee that you’ll be able to sell the property if you need to. You may lose money if the office sits on the market for too long.
• Could Sell for a Loss: If the market is down you may make a loss if you sell at the wrong time.

Get Advice from Local Experts

Before you commit to one of the options above, speak to the Perth commercial real estate team at Ross Scarfone Real Estate. We specialise in leasing and selling offices and warehouses in Belmont and the surrounding areas.

You’ll be able to tour the available office properties and we can discuss options that will suit your business and financial positions.

Contact us about your commercial real estate needs