Buy or Rent your Commercial Space
Category Editorial
In the fast-paced world of hybrid working, many small businesses recognize the value of a dedicated office or headquarters, despite the challenges it brings. A physical workspace can help employees maintain work-life balance and facilitate collaboration, workshops, and company events. However, the choice between renting and owning commercial property can significantly impact a small business's cash flow, necessitating careful consideration of several unique factors.
Owning commercial property offers the advantage of having full control over renovations and improvements, allowing businesses to tailor the space to reflect their brand's aesthetics. Moreover, in unfortunate scenarios where a business may close down, the property can be a source of rental income by accommodating tenants. If downsizing becomes necessary, leasing out a portion of the property can create additional revenue streams. Additionally, selling the property upon the business owner's retirement can serve as a cash nest for their future.
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However, one immediate downside of buying property is the potential impact of rising interest rates. With South Africa witnessing consecutive interest rate hikes, the monthly bond installment may increase over time, straining the business's cash flow. In such cases, renting a space may be a more suitable option. The ability to claim the monthly rental amount as a tax-deductible expense is one of the benefits of renting, which is not applicable to businesses that own their property.
To decide between renting and owning, businesses must assess whether each option increases the immediate cost of utilizing a dedicated space. In some instances, bond repayments may be comparable or slightly higher than rental costs. On the other hand, renting might grant access to sought-after, prime locations that may be financially out of reach for purchasing.
The importance of location to maximize revenue must also be considered. Retail stores, for instance, heavily rely on prime locations, where renting could be a viable solution. Conversely, owning property in central business districts or cultural hubs could prove to be a profitable long-term investment, yielding positive returns upon future sale.
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The size and nature of the commercial property should align with the business's growth strategy. If the business intends to scale in terms of workforce or manufacturing capacity, renting may be a more flexible short-term solution.
Ultimately, there is no one-size-fits-all answer for small businesses when it comes to choosing between renting and owning commercial property. Careful evaluation of critical metrics and individual business needs will help owners make the best-informed decision for their company's future.
Author: Spire Property Solutions
