Office Space: Rental vs Purchase
If you’re looking to move office, you may be wondering whether leasing or purchasing your new office is better. This is an important decision, as it will have a big impact on your cash flow and expansion plans over the coming years. It can also be a complex decision, with many different factors affecting what is the best option for you.
There are advantages and disadvantages to both leasing and owning office space. Owning your office gives you much more control over your workspace and also provides stability. On the other hand, leasing has much lower upfront costs and is more flexible.
We’ve been helping companies across the UK with workspace strategy and office relocation for 15 years. In that time, we’ve completed projects in both rented and owned buildings, and have helped numerous companies decide which is best for them. So which is the best option for you? Unsurprisingly, it depends on your specific situation. In this article, we’ll take a closer look at the pros and cons of each option. We’ll also explain several key factors that affect the cost of office space.
Buying Office Space
Advantages of Purchasing Office Space
The biggest advantage of owning your office is that you have an asset that increases in value over time. Over the last 20 years, commercial real estate prices have increased by nearly 250%. If you were to purchase an office building now, it would almost certainly grow in value significantly in the future. As a result, your company’s asset base would improve.
Owning an office also gives you more stability. As you don't have to get landlord approval for anything, you have much more control over your space. This means you can refurbish or reconfigure your office whenever you want, without having to ask permission from your landlord.
Disadvantages of Purchasing Office Space
However, there are also some downsides to owning your own office space. Purchasing an office space is a large upfront expense. This is especially true if you are looking for an office in a premium location, such as central London. This is why leasing is so much more popular than purchasing, as many companies do not have sufficient funds for such a large cost. You will also be completely responsible for the maintenance and repairs that your office needs. You won't be able to delegate resolving such issues to your landlord.
The stability that is provided by owning an office can also become a disadvantage if your workspace needs change. An office is much slower to move out of than a leased space, as the sale process is complex. If your business grows rapidly, you may need to lease or purchase more office space, separating your team. Even worse, if your team shrinks, you may have too much space, and be stuck with an expensive office that you don't need.
Leasing Office Space
Advantages Of Renting Office Space
The greatest advantage of leasing is the lower upfront cost. While you may need to pay 6 or 12 months’ worth of rent before moving in, this is a very small amount compared to the cost of purchasing. The lower upfront costs may mean you can afford office space in a much better location.
Another benefit of leasing office space as opposed to outright purchase is the improved flexibility. Most lease terms last 5-10 years. Many leases also have 1 or 2 lease breaks – predetermined points during the lease at which either party can end the lease. As the process to lease an office is much simpler than selling, it is far easier to move office if your requirements change. This can be especially valuable for fast-growing companies and those in volatile industries.
Disadvantages Of Renting Office Space
Much like outright purchase, leasing office space also has its downsides. The first is that you will have much less control of your space. If you want to refurbish your office you will have to get formal approval from your landlord before you can begin, and they may place certain restrictions on the work. In addition, you cannot end the lease whenever you want. You will be constrained to predetermined lease ends and lease breaks. While moving office is more complicated, you can begin the process whenever is right for you.
Another drawback of leasing is that the monthly or quarterly rental costs will soon mount up. Depending on the location of your office, it may only be 10 or 15 years before you have spent more in rental than you would have in an outright purchase. As you are renting your office, this will be an expense rather than an asset.
What Affects the Cost of Office Space?
Location
Unsurprisingly, the biggest single factor that will impact the cost of your office lease is the location. London is much more expensive than the rest of the country. Other major cities such as Manchester and Edinburgh are also more expensive than regional locations.
Leasing office space in central london will cost from £100 to £150 per square foot per year. Most other key cities in the UK will cost around £40 per square foot per year. Purchasing your office will often cost 10-15 times that of the annual lease.
Condition
The quality of the actual space will also be an important factor in your office space cost. This includes the utilities, views, and general quality of the building itself. The costs mentioned in this article are based on good quality space with standard amenities. For landmark buildings or tower blocks, the costs will be much higher. Lower cost (and quality) spaces will also be available.
Amenities
The impact that amenities have on your real estate cost will vary depending on your location, and so will the options available. Some amenities such as receptions, lifts, and toilets are available in almost every building, but the quality does vary. Additional amenities such as coworking lounges, outdoor areas, cafés, or lounges are valued highly by staff. However, they do increase your office space costs.
Transport
Transport links are often overlooked when comparing options for offices, but the ease of access is incredibly important to staff. The location of your office needs to be as convenient as possible for all your staff, clients, and visitors. One of the main reasons many staff like working from home is the lack of commute. Making the commute as painless as possible will encourage your staff to be in the office more often.
Making Your Decision
So, should you lease or purchase your office space? Ultimately, there is no one right answer. It depends on your company’s workspace needs, available funds, and growth trajectory. If you are an established and stable company with available funds, then the improved control and equity of purchasing may be best for you. On the other hand, if you are growing fast or require an office in a prime location such as central London, then leasing will likely be more appropriate.
While the cost of the space itself will be the biggest cost of your office relocation, you will also need to factor in legal costs, dilapidations, fit-out costs, operating expenses, and the actual relocation itself. To learn more about what that will cost, check out our article on office relocation costs 2023. You’ll get a full breakdown of everything you need to know about office relocation project costs.
To get the full breakdown of everything you need to know as your plan your office move, download our office relocation guide. You’ll find a full explanation of everything that goes into moving your people from one office to another, including strategy, design, and delivery. We’ve also included typical timeframes and cost structures to help you understand how much investment your relocation will take in terms of both cost and time. Download your ultimate office relocation guide here.