Posted on August 30, 2018
Deciding between owning or leasing commercial office space is a lot like deciding whether to purchase or rent a house. Owning your own building can be a solid financial strategy for many businesses, while others may benefit more from leasing.
Utah’s strong economy continues to attract investors to the Salt Lake City market, leading to a record $2.2 billion in sales last year. About $1.1 billion of those sales – yes, half – were due to a surge in the industrial, commercial office space and retail markets. With commercial leases still on the rise in 2018 and the availability of vacancies decreasing, the commercial real estate market continues to show growing demand.
How do you know if buying or renting is right for you? Here are some things to consider.
There are several obvious advantages to owning commercial real estate:
• Build equity on your investment
• Long-term fixed monthly payments
• Tax benefits and deductions
• Control of space
• Option to sell for profit or do a sale/leaseback if you decide to vacate
The growth of the industrial real estate market along the Wasatch Front shows no sign of slowing down. Although the retail sector took a hit early this year, there are currently several tenants in the market for 100,000 square feet or more range of office space, with few properties available for lease. The increased need for office space can lead to a rise in lease prices, making 2018 a great time to purchase commercial real estate.
According to KSL, industrial leasing in Salt Lake County topped 1 million square feet for six consecutive quarters as of the beginning of 2018. While a down payment may deter you from buying, it’s important to remember that a security deposit is typically required on a lease and, depending on the terms of the lease, it could be sizeable. If you’re on the fence about buying versus leasing, consider looking for properties with a purchase option. Pros to leasing business property include:
• Writing off rental costs on annual tax returns
• No maintenance responsibility when it comes to repairs (although renters may be responsible for maintenance costs)
• Option to vacate or extend when the lease terms are up
A sale/lease-back is a great option for business owners who currently own but prefer to lease due to their current situation. A sale/lease-back means an investor buys the building that you currently own. In turn, you lease the space back from them. This is a good option for freeing up cash flow. Additionally, there are tax advantages since rental payments under the lease are deductible.
The best way to decide whether owning or leasing is right for your business is to discuss the pros and cons with a qualified commercial real estate agent and your accountant. Together, they can help you assess your best options based on your current personal and business finances.