Buying vs Renting: What should your business choose?
So, you’ve decided you need an additional space for your business. Now the question is whether to buy or rent. There is much to consider when making this decision, and we’ve summed them all up for you here.
Your business sector
Different sectors have different needs. Traditional brick-and-mortar businesses for instance, such as those in e-commerce or the service sectors, can benefit more from a purchased space. This is because much of their revenue is tied to physical traffic and a space for their goods, as compared to a marketing agency, for example, which mostly relies on human capital.
Flexibility to support your employees and the business
A key difference in a rented and purchased property is the ability to change the layout as and when you need to in order to better support your employees and the business.
When renting a space, businesses are bound to commercial lease agreements which are drafted by landlords. These agreements usually limit what businesses can do with the space, including renovation works.
Aesthetics aside, these personal touches can improve employee morale, and make office life more pleasant for everyone. Owning a space means you can brand and structure it however you please, as long as safety requirements are met.
Another thing to consider is our new way of working. Flexible work arrangements are likely to continue beyond the pandemic. If that happens, businesses could find that they need less space than before. However, this extra space doesn’t have to go to waste, if you own it.
In fact, if you lease your office, chances are, your agreement would stop you from subletting that extra space.
Owning a space means one can act swiftly and do what’s best for the balance sheets.
Your business financial health in the near future
An important consideration is your expenses. Naturally, buying a property would be a mammoth one, especially if a property loan takes decades to pay off. In contrast, renting a space is a cheaper option and would be lighter on the wallet.
For businesses with substantial debts, or those that are just starting out, renting might be the better option, simply because of the other financial burdens placed on the company already. While debt is natural, you should also ensure that your company is stable enough before making a large financial commitment such as a property purchase.
That said, don’t let this limit your choices, especially if you, as the business owner, are confident that your business can hold up through economic cycles and be well in the green in the near future.
The long-term cost of investment
It’s not just the ‘now’ that you need to consider, but the ‘later’ too.
Leases for large commercial spaces in Singapore generally run for five to six years. If the space is smaller, as it is with some offices, leases run for two to three years. You may also need to fork out maintenance fees, such as electricity bills. Towards the end of the lease, landlords usually give tenants the opportunity to renew it for another term.
Leases can be renewed at the present market rate, which may be higher than what was previously set. Or, the lease may not be up for renewal at all. Searching for another space could mean extra costs. At the very least, it takes away time that could be spent on furthering business goals.
Whereas when buying an office space, SMEs know what to expect on the expenses side. There is no shortage of commercial property loans in Singapore, which are offered by providers like OCBC. What’s more, they come with different loan terms to suit every business’ purposes.
When taking a bank loan for commercial property, you will know the Effective Interest Rate (EIR) and repayment period up front. This means you can simply set aside the sum of money every month with the help of a loan calculator, and take up a package with your desired repayment period of up to 30 years.
Should circumstances change, there is also the possibility of shortening your repayment period to pay less interest over time. This is of course subjected to a review by the banks.
The price is right — now
Whether you are looking to rent or buy, it is a good time to do so now.
Office prices are set for appreciation, and Singapore office rents primed to recover in the second half of 2021, as believed by commercial real estate services company, CBRE. The upswing will be led by Chinese technology and non-bank financial services firms, CBRE adds.
This sentiment can spill over to the buying market, and businesses which get in early may see a quick appreciation. So if you’re looking to purchase your office space right now, you might be able to benefit from it.
According to the Urban Redevelopment Authority, the prices of office space in the Central Region of Singapore have fallen in 2021, where the office price index fell to 118.2, marking the lowest level since 2011.
Buying an office during this ‘dip’ could increase your chances of turning a profit in the future, when commercial mortgage rates recover. Even if you have no intention of selling, owning an office can give your business the additional space and drive to grow.
No matter your decision, you can always reach out to financial providers like OCBC for more information. Once you’ve decided on the space, they’ll be able to advise you on matters like business property loans, and help turn your vision into reality.
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The information provided herein is intended for general circulation and/or discussion purposes only. Before making any decision, please seek independent advice from professional advisors. No representation or warranty whatsoever in respect of any information provided herein is given by OCBC Bank and it should not be relied upon as such. OCBC Bank does not undertake any obligation to update the information or to correct any inaccuracy that may become apparent at a later time. All information presented is subject to change without notice. OCBC Bank shall not be responsible or liable for any loss or damage whatsoever arising directly or indirectly howsoever in connection with or as a result of any person acting on any information provided herein. Any reference to any specific company, financial product or asset class in whatever way is used for illustrative purposes only and does not constitute a recommendation on the same.
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