EDITED BY THE EDITORIAL TEAM :: PHOTOS: SUPPLIED
Before deciding whether you as a small business owner should rent or buy a commercial property, it is crucial to consider the advantages and disadvantages in relation to your business’s current state and growth plan as an entrepreneur.
Despite the rise of hybrid working, small businesses recognise the value of a dedicated office or headquarters. Having a physical workspace can support work-life balance and facilitate collaboration, workshops, and company gatherings.
However, the financial impact of commercial property, whether rented or owned, requires careful consideration. Kevan Govender, regional investment manager at Business Partners Limited, advises small business owners to assess the pros and cons of buying or renting commercial property. Considering the unique factors of their business, owners must determine the best approach to ensure financial viability.
REASONS TO OWN PROPERTY
Owning commercial property grants you the freedom to renovate and make improvements as desired. This is particularly advantageous for businesses using the property as a point of sale, as it allows them to design the space to align with their brand aesthetic, enhancing branding opportunities.
Furthermore, commercial property offers a safety net in the unfortunate case of business closure, as it can generate rental income by leasing to tenants. It can also provide extra income by leasing a portion of the property during downsizing. Additionally, selling the property upon retirement can serve as a source of retirement funds, Govender says.
Kevan Govender
THE DOWNSIDE OF OWNING
The most immediate downside of buying property for your business is the risk of rising interest rates. South Africa has experienced 10 consecutive interest rate hikes in just three years, indicating the likelihood of future increases. This can result in higher monthly bond repayments, potentially straining your cash flow over time.
THE PROS OF RENTING
According to Govender, renting a space can be a favourable option for business owners who are hesitant to invest in property in a challenging economic climate. One major advantage is the ability to claim the monthly rental as a tax-deductible expense. Unlike owning property, the capital portion of bond repayments for owned properties is not tax deductible.
REASONS AGAINST RENTING
One significant drawback of renting commercial property is the absence of equity or investment value, Govender explains. Monthly rentals are considered hard expenses that reduce revenue and do not yield any return on investment when relocating.
OTHER FACTORS TO CONSIDER
Firstly, you should assess whether the immediate cost of owning or renting will significantly impact your use of a dedicated space. In some cases, mortgage repayments may be comparable or slightly higher than renting costs. Renting can also provide access to prime locations that may be financially out of reach for purchasing, he says.
Location is a crucial consideration, particularly for retail stores where it can greatly impact revenue. Owning property in desirable locations, such as central business districts or cultural hubs, can lead to substantial value appreciation over time, making it a profitable investment when selling.
Additionally, evaluate whether the size and nature of the property align with your growth strategy. If scaling your business in terms of workforce or manufacturing capacity is a priority, renting may be a more flexible short-term solution.
Ultimately, there is no universal solution for all small businesses, and your decision whether to rent or buy a commercial property should be based on a thorough analysis of your specific business needs and goals, Govender concludes.
