This question is very crucial for business executives. As a matter of fact, their business operations and costs are totally dependant on this decision to grow internally. Renting or owning an office space each has advantages and disadvantages associated with them. All the related factors must be carefully considered and scrutinized before opting for either option.
Flexibility in a commercial office space is vital for new start-up companies or those firms aiming to boost their established business operations. They need to expand to ensure a sustained rate of growth. In Singapore, it may prove to be costly to buy an office space. In these conditions, it is better to lease an office space in Singapore, with greater options to expand when the lease term is at an end.
From which growth phase your business is passing through must be considered for the decision to choose to buy or to lease an office space. If your company is new startup or is experiencing economies of scale, leasing could make the growth more flexible. Conversely, if your company is well-established without any big ups & downs being faced, buying an office space may enable you to meet your future business needs.
Pros of Office Leasing
Prime Property: The decision to lease office space gives a business the opportunity to locate in an area with a high image or your own preferences. If your business is reliant on location and image factors, the option to lease an office space is appropriate & affordable too.
Free-up Working Capital: The working capital that is now available due to the decision to lease an office space rather than to buy it opens various doors of investment opportunities. The initial cost would be very low in leasing an office space, hence, preventing any negative cash flows or liabilities.
Time: Being an owner always has been a tedious job. A leasing option makes the relocation task easier leaving more time for you to focus on your business activities.
Cons of Office Leasing
Variable Costs: Choosing to lease an office space may cause an increase in annual rent and other costs at the time when your lease period expires.
No Equity: During the leasing period, your lease payments will be used to fund someone else’s retirement. However, owning an office space needs you to be a part of the management side of the business.
Pros of Office Buying
Fixed Costs: When choosing to buy an office space you often can estimate your long-run costs. This is particularly true if you have a long-term fixed rate mortgage to your company’s name. If you lease an office space, market conditions would determine rates of rent over the long run.
Appreciation: Increase in the business worth through market appreciation is one of the principal aims of buying an office. It often proves to be great idea when market conditions are stable and the economy is operating on its growth mode.
Additional Income: Buying your office may allow you to rent out any vacant office space giving you a source of income.
Cons of Office Buying
Lack of Flexibility: A new company or an expanding business has uncertainty during its initial phase. If your business continues expanding, your currently owned office space may become insufficient for you to operate your activities. You may then have to sell it and the time period during this sale is also of much consideration to the business.
Upfront Costs: There are large upfront costs involved in an office purchase in Singapore. Keeping in mind Singapore’s commercial real estate value, this will be an amount worth it. From stamp duty to property taxes and maintenance costs, along with a large down payment, a company has to bear much more after the acquisition of the office space. If one buys commercial space, initially it will cost far more upfront.
Opportunity Costs: There is a huge opportunity cost involved in buying an office space. What possible profits, interests and/or dividends are being neglected if the money is used to fund internal growth?
Limited Supply: In Singapore, prime office buildings are owned by developers in the commercial business districts where they only lease it. This may limit sales of your business in CBD. Businesses who aim for a good corporate image require innovative and well-designed office buildings for their use.
The final decision to lease or to buy office space in Singapore is indeed very complicated and full of disputes. As your organization moves towards making its final conclusion, you need to be sure that every aspect has been carefully considered. It is better to look at the situation from the ideal view to the worst scenario and the expected outcome.
To lease or to buy office space is not a clear-cut decision. Your decision will dangle on issues relating to finance, taxation, and some personal issues. Avoid quick decision-making in this case. Give the task to your accountant and financial advisor to help you choose the most favorable option.