For many business owners, the decision of whether to purchase property or simply lease space from someone else can be difficult to figure out.
“Each tenant is different,” said Brent Jackson, senior vice president at Jones Lang LaSalle in Bellevue. “And the straight answer for if leasing or buying is best really comes down to what is best for the business and their financial needs and ability.”
Jackson, who has more than 30 years of real estate experience, recently shared some of the factors one who is debating whether to lease or buy should consider.
For example, leasing a building provides more flexibility, less upfront costs and capital investment, and the facility management and emergency services of a dedicated landlord. Pitfalls include unfavorable market cycles leading to rent escalations, a competitive marketplace among high demand, and no equity build-up.
When buying, after a significant initial investment and complex application process, many buyers find their investment gives them pride of ownership, controlled operating costs, and capital investment. More importantly, buyers have the security of knowing their businesses can’t be evicted or charged higher rent.
Jackson said the majority of his firm’s Eastside clients opt to lease, while only 20 percent purchase office space. The majority of those leasing companies are smaller, local businesses with staffs that range from 10 to 80 employees and are occupying buildings ranging anywhere from 2,500 to 20,000 square feet.
“My experience is that smaller-sized professional service companies are big fans of owning their own real estate,” Jackson said. “Their businesses are usually mature and established, so the risk of long-term ownership is minimal. They often turn the building into investment income when they retire and lease the building back to the new ownership group.”
The Eastside currently is seeing a booming commercial real estate market, with some of its hottest spots, including the popular Bellevue Suburban and Bel-Red Road, thanks to the new East Link Light Rail Extension set to begin in 2023. Kirkland’s west side also is seeing a lot of new businesses.
Prices for commercial real estate on the Eastside vary widely depending on location. According to a CoStar survey, they range from $466 per square foot for buildings under 10,000 square feet, to $424 per square foot for buildings between 10,000 and 20,000 square feet, and $299 per square foot for spaces over 20,000 square feet. But those are just ballpark figures.
There might not be a solid answer whether buying or leasing is a better option. At the end of the day, the bottom line is you need to weigh your options and decide what is best for your business.
Companies that are stable and have the capital to buy and maintain operations of the real estate might want to look into purchasing. However, companies that are still growing and want to avoid the headaches of remodeling, moving, and large up-front costs might want to consider leasing. Whichever you choose, one thing is certain: The current market is a hot and pricey one.
“We’re currently seeing historically high demand, very low vacancy rates, strong rent growth, and investor and buyer demand,” said Jackson.