Is buying or renting the better option for commercial property? - Palmers Solicitors

Is buying or renting the better option for commercial property?

Is buying or renting the better option for commercial property?

Given the uncertain financial climate, when it comes to commercial property, it’s important to weigh up the pros and cons of buying versus renting your next workplace.

Here, Elena Nicolaou, a Solicitor in our Commercial Property team, explains the main considerations you need to weigh up:

Why rent a property?

Renting could be a better option for you and your business as it could provide greater flexibility as your business takes off.

Some of the benefits of renting include:

  • Upfront costs are low, although a significant deposit may be required
  • There is less capital tied up in the property, which means cash can be spent elsewhere
  • Depending on the terms of the lease, less exposure to building maintenance and repairs
  • You are less vulnerable to interest rate changes that might affect a mortgage.

While tenants may not be directly exposed to interest changes, it could affect the landlord who may wish to increase the rent to compensate for his or her increased costs.

It is important, therefore, to check any rent review clauses before signing the lease.

Why buy a commercial property?

Buying premises is a big financial commitment, but it does allow you to gain an income through letting or sub-letting, and benefit from any increase in the value of the property when you come to sell it.

Properties with the highest number of tenants usually bring in the highest return on investments and include:

  • Student accommodation
  • Multi-family use
  • Office space
  • Self-storage facilities
  • Retail stores, shopping centres, shops
  • Warehouses and factories
  • Leisure facilities like hotels, pubs, restaurants, cafes, and sports facilities.

You should consider how the pandemic has affected commercial property, particularly as more people are now working remotely.

If deciding to buy, a number of factors and costs should also be considered, including:

  • Professional fees
  • Stamp duty costs
  • Budgeting for repairs and maintenance
  • The cost of environmental compliance
  • Building waste management.

You will be subject to taxation at the time of purchase through Stamp Duty Land Tax (SDLT) and at the sale where Capital Gains Tax or Corporation Tax may apply.

The important thing is to check with your commercial property adviser at each step of the process as professional help can often mitigate costs.

Thinking of buying or renting a commercial property? Get in touch with our team for advice.