Renting vs Buying Office Space: Pros & Cons
Deciding whether to rent or buy office space is an important decision that can significantly impact your business’ bottom line. While buying may seem like the better long-term investment, leasing office space comes with a number of financial benefits. This blog post examines the key costs to consider when weighing renting versus buying your next commercial space.
One of the biggest differences between renting and buying lies in the upfront costs. Buying requires a large down payment, typically 20% to 25% of the total purchase price. This means that buying a $500,000 office space requires $100,000 to $125,000 down. Additional upfront costs when buying include:
• Loan fees
• Appraisal fees
• Inspection fees
• Title insurance fees
• Survey fees
Renting only requires payment of the first month’s rent and a security deposit, typically equal to one to two month’s rent. There are rarely any other upfront fees to start a lease. This helps businesses conserve capital.
Monthly Carrying Costs
Once you get past upfront costs, renting and buying diverge again when you look at regular monthly expenses. Buying means paying a mortgage every month rather than rent. While principal payments help build equity, you also have to pay interest, taxes, and insurance:
• Mortgage Interest. This is typically the largest component of a mortgage payment.
• Property Taxes. These can fluctuate year to year based on changing property valuations.
• Property Insurance. Property insurance is required for the purchase of a property.
• HOA Fees. One normally associates these with residential neighborhoods, but they also apply to commercial developments if the office space is a condo or managed building.
Renting locks in your monthly payment for the duration of your lease term (typically three to five years). This allows for reliable forecasting of occupancy costs. Rent payments are also tax deductible expenses.
Maintenance and Repairs
As a building owner, regular maintenance and repairs are your responsibility. These costs add up over time and include things such as:
• Wear and Tear. Your interiors must look sharp; this includes flooring, paint, wallcoverings, etc.
• Furnishings. Whether you rent or own your office, the care of desks, chairs, conference tables, and cubicles is critical. Poorly maintained furnishes impact brand impression.
• Cleaning. An office must be clean and convey professionalism. This is where janitorial services play an important role.
• Landscaping. Assuming your property has outdoor areas, they must be managed—mowed, trimmed, and fertilized.
• Parking Lot. These must be sealed, restriped, and resurfaced.
• Roof. Depending on the materials, roofs must be replaced every 15 to 20 years.
• HVAC. These also are expensive; replacements may be needed after 10 to 15 years.
• Property Taxes. These tend to increase over time due to increases in local taxes and passage of new taxes. Plus, upgrades to the property result in tax increases.
These are all built into rent and covered by landlords who are also responsible for common area maintenance. The same is true for on-demand rented offices like coworking space, day offices, and rented meeting rooms. With these cost savings, you can channel capital towards growing your business instead.
When you own the office space, you pay for all utility costs including electricity, gas, water/sewer, trash, internet, and phone service. With a rental, leases often include base year utility coverage, so you only pay for overages. This allows for better cost control since utility expenses are built into your monthly rent. Rented meeting space like Davinci Meeting Rooms includes utilities such as internet and electricity in their hourly and daily rates, eliminating another variable cost.
Cost of Custom Build Outs
Purchasing office space means you will likely incur substantial costs to customize the space to your business needs before move-in. This includes expenses like demolition, construction permits, hiring architects and contractors, installing cabling and internet, purchasing furniture, and more. With a rental, turnkey office spaces are often available that require no custom buildout. It's also common to negotiate an allowance with landlords to put towards initial improvements.
Costs of Moving
The costs associated with moving should also factor into whether you rent or buy your office. If purchasing a property, you may need to fund a costly move soon after occupying if the space doesn’t meet your needs. This incurs expenses like hiring a moving company, printing new branding and stationery, IT infrastructure changes, and downtime during the relocation. Renting provides more flexibility to relocate as your business evolves, with many leases allowing free renewals and expansions within the same building or portfolio.
When it’s time to sell your commercial property, there are substantial costs including sales commissions, transfer taxes, paying off any outstanding mortgage, and repairs requested by buyers. With a rental, you simply give notice and return the space as-is when your lease ends, avoiding these hefty sales costs and headaches.
Flexible On-demand Workspace Solutions
Renting traditional office space isn’t the only option. Flexible workspace providers like Davinci Meeting Rooms offer convenient short-term or even long-term solutions. As a starting point virtual addresses through providers like Davinci Virtual Offices enable small businesses to secure professional addresses that garner positive brand impressions and come with mail receipt and forwarding, a lobby directory listing, registered agent services, a lobby greeter, and more.
For businesses needing coworking space and day offices, in addition to rented meeting rooms, Davinci Meeting Rooms offers thousands of options globally. They are easy to identify and reserve. The cost of utilities, maintenance and repair, and other costs associated with owned office space is built into the cost of on-demand office space. They come with kitchens, lobby greeters, office equipment, and more. Further, workspace and meeting rooms can be reserved by the hour, half day, and full day.
Assessing Rented vs. Purchased Office Space
New and existing businesses need to carefully consider whether to buy or rent office space. Buying requires major upfront capital and ongoing ownership responsibilities. In contrast, renting offers more flexibility and predictable monthly payments, allowing better cost control. Given the uncertainty of new ventures, it may be prudent to prioritize spending on core business operations rather than real estate.
Flexible workspace solutions like Davinci Meeting Rooms provide affordable short-term options without long-term commitments. And for small businesses seeking longer-term solutions, Davinci Meeting Rooms offer multiple options tailored to their current needs. The right workspace can conserve capital for other business priorities in those critical early stages.