The Pros and Cons of Renting Vs Buying Office Space
You may find yourself asking should you buy or rent your office space at some point in your business. This question is very crucial for business owners. Your business costs is totally dependant on this decision. Renting or owning an office space each has advantages and disadvantages associated with them. All the related factors must be carefully considered and scrutinized before opting for either option. We have put together a list of the pros and cons of renting vs buying office space in Singapore.
Pros of Office Leasing
Flexibility: You have to have flexibility in your office space especially for new start-up companies or those firms who are growing quickly. Because it may be more costly to buy an office space in Singapore. In this situation, it is better to lease an office space. So you can have greater options for expansion when the lease term ends.
Prime Location: Renting an office space allows you and your business to be in a prime location with a prestigious address. Areas like Marina Bay Financial District and Raffles Place where you may not be able to buy an office space, grade A office buildings are also not available for sale. Hence the option to lease an office space is more suitable & affordable too.
Free-up Working Capital: You may have to have more initial capital outlay for the down payment and miscellaneous fees like stamp duty. This may dilute your available working capital. However, the initial cost for renting an office would be low compare to buying one, hence, freeing up more funds for business expansion or investment.
Cons of Office Leasing
Variable Costs: Increase in annual rent and other costs like reinstatement at the time when your lease period expires is a disadvantage of renting an office.
No Equity: During the leasing period, your lease payments will be used to fund someone else’s retirement.
Pros of Office Buying
Fixed Costs: Buying an office space helps you estimate your long-run costs. The fixed-rate mortgage gives you a clearer fixed cost over a longer period. If you lease an office space, Your rental rates would be determined by market conditions. This creates uncertainties in your business cost.
Capital Appreciation: Buying an office space is an investment in real estate. In Singapore, office space prices appreciate over time, especially in a prime location. You may also use the property as collateral when applying for a business loan.
Additional Income: You can rent out any vacant office space, hence, increasing your cash flow and adding your source of income.
Cons of Office Buying
Lack of Flexibility: A new company or an expanding business has uncertainty during its initial phase. If your business continues expanding, your currently owned office space may become insufficient for you to operate your activities. You may then have to sell it and the time during this sale is also of much consideration to the business.
Upfront Costs: The high upfront costs involved in an office purchase in Singapore. From stamp duty to property taxes and maintenance costs, along with a large down payment. This may be taxing on the company’s cash flow.
Opportunity Costs: There is a huge opportunity cost involved in buying an office space. What possible profits, interests and/or dividends are being neglected if the money is used to fund internal growth?
Limited Supply: In Singapore, most prime office buildings are owned by developers or REIT. This caused a limited supply of prime and well-designed office buildings for sale. So you may be restricted by the choices available to you especially if you need a bigger floor plate and stronger corporate image building.
There are many pros and cons of renting vs buying office space and the decision to rent or to buy your office space in Singapore is not easy too. You need to consider every aspect and understand the market condition. There are many related issues like finances, taxation and condition of the property. Talk to us today for more in-depth analysis and see which is a better option for you.