Should SMEs buy in to office space or rent?

Should SMEs buy in to office space or rent?Image Credit: Supplied

Real estate prices are near the bottom end of the cycle and finance is easily available at low interest rates. Small and medium enterprises (SMEs) should take advantage of these factors and take the purchase route rather than continue to pay high rents.

The biggest reason for this would be peace of mind. Negotiating lease renewals is a major headache and dealing with (sometimes) unscrupulous landlords is not exactly a cakewalk. Purchasing property would do away with such unnecessary stress and allow planning for the long term.

Mortgage rates haven't been this low in over a decade and it's time to take advantage. The rental yields in commercial property are close to double digits and the gap between high rental rates and low mortgage rates is too huge to ignore.

Property prices are at near-bottom levels and the outlook is positive for a relatively short period of three years or so. Rent savings plus capital appreciation are twofold benefits that your bank balance will thank you for in the medium term.

Are looking to raise capital in the future? A property asset owned by the business indicates stability and helps clear the path for future investments and borrowing.

Things to consider

Location — Your office serves as a branding tool for your product or service. Therefore, your choice of location has to be carefully considered. Consider amenities in the vicinity such as coffee shops, gym, restaurants and public transport as well as office amenities such as pantry and toilets. Also, is the location easily accessible to my clients and employees?

Size — The size of the office is usually determined by the type of business and number of staff. Should you have plans for expansion, it is always recommended to go for a little bigger space at the outset. Do you require desks, cabins required and meeting or conference rooms? Will the place suffice for storage if required?

Price — This is probably the most important factor for most businesses when deciding to buy an office space. One must always move ahead with a budget in mind and keeping a little buffer and try a get a good deal. Also the option of mortgage can be considered should you be restrained in your budget. It is always better to do a quick comparison within the areas for office space of similar size available.

Free zoneBuying an office in a free zone has its pros and cons. Free-zone areas do not require a local sponsor and can give you 100 per cent ownership of your business. However, there might be some restrictions on territory and activities allowed in free-zone setups at times. Generally the capital requirement for a free-zone business is similar to one under the Dubai Department of Economic Development set-up. You can enjoy import and export tax exemptions in a free-zone set-up.

Parking — It's important to consider the parking space available at your proposed location, as well as the potential cost to employees and customers. If parking is tight, are there parking facilities nearby and what is the cost involved? Proximity to public transport like buses, Metro and tram could have a large impact on the purchase decision.

Rental savings — Calculating the opportunity costs here is important. Will you be saving more in the long run if you have your own office space rather than paying annual rent, which keeps fluctuating? Compare the cost of relocation when you need to vacate your rented space or the possibility of an exorbitant rent increase with the cost of purchasing an office space.

✔ Additional costs — Costs for fit-out, utilities, maintenance, disruption time, moving expenses and licensing cost, if any, must be accounted for before taking the final decision.

Find out if serviced offices are making sense for new companies

Source: Dev Maitra, Special to Property WeeklyPW

The author is CEO of Indigo Group


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