To Build Or Rent?
I do wish there was a definitive answer but like so much in business the real answer is – “it depends.” However, the good news is that the factors that the answers depend upon are fairly straightforward.
A retail business is a better position to lease commercial space. Lease space will be cheaper in the short term which could help a company open more locations at the same time. It also has the added advantage of not locking a business in a single location for the long-term. If it is more advantageous for the business to close the location or to move the location, a lease makes those options more plausible. There’s also commercial space readily available almost everywhere which can be remodeled and renovated to suit any business’s needs.
Exception. If a retail business is very well-suited for its location long-term, it could be advantageous to build a permanent structure. It could even pay for itself if a business is able to build other retail spaces that could be leased out. The right businesses could even complement the owner’s business with more foot traffic. Like a ladies clothing boutique would gain advantage from a neighboring beauty salon or a woman’s shoe store.
A manufacturing business would be better suited with new construction. It is very rare that a growing manufacturing concern can find proper industrial space that is customized for their needs. Manufacturing has its own unique power needs, environmental laws to be considered, and shipping, receiving, and warehousing considerations. As a manufacturing business will probably not move location, the long-term commitment to owning a building should not be a problem.
Exception. There may be unique opportunities to take over an existing facility from a current or former competitor. A location where all the infrastructure is in place to grow one’s own business without the need of a lot of excessive remodeling and renovation. It could even come with tax incentives from cities and states that have built industrial parks and are looking to fill their buildings. The key to finding a building like this is timing. The timing has to be just right that a building is available precisely when your own business is looking to grow.
A service business that is only needing office space should definitely only consider leasing. In many locations throughout the country there are a lot of inexpensive business parks or office spaces that commercial realtors are going begging to fill. These spaces will very often offer some very nice perks to fill those spaces at very cheap rates. Should a business need more than just office space, like in the trades where a business may need shop space, leasing is still a good option. Like retail it does not lock a business into any single location for the long-term. When the lease is up it gives a business more time to see if there’s better space available. If there is not any better space then the business can simply renew its lease.
Exception. The only exception that comes to mind for a service business to own its own building is when it needs to actually extend outside of the building. For example when the yard is heavily utilized either for parking or for equipment, then it may make sense for a business to build. Owning a building also alleviates the business of any concern of a lease not being renewed.