Pros and Cons of Renting Office Space

Whether you’ve started your startup in a garage or the attic, as you start scaling your operations, you desperately need an office space to sustain increasing employees and equipment.

But there isn’t always an easy solution. Between renting and buying a commercial space, startups often make the wrong decision and confine themselves to the limitations of their choice.

Due to increasing property rates and tax burdens, many startups and corporations consider renting properties more than buying office spaces.

However, the comparison doesn’t end there. This article will discuss the pros and cons of renting an office space.

Before signing any contracts, consulting with a qualified real estate attorney will be crucial. They will be able to make sure the terms are acceptable. Let's dig in.

Pros of Renting Office Space

Several benefits are associated with renting an office space. Depending on your operations and budget, these pros can hold different weightage. Regardless, these are considered the primary reasons for any organization to rent an office space and buy one.

Minimal Installation Hassle

Buying office space is only the starting point. When you invest in buying an office space, you’re only entitled to the space you’re paying for. Typically, the buyer's responsibilities are electricity, water connections, interiors, heating elements, and furniture.

The additional costs often outgrow the cost of buying the space. Even if we disregard the costs, the hassle of setting up the office space can be exorbitant and resource intensive.

On the other hand, Dallas office space for rent typically comes with electricity, water connections, and a few fixations.

You, as a buyer, are only responsible for bringing your own equipment and installing custom interiors. Although it doesn’t negate the installation hassle of your own assets, it’s much more feasible than buying one.

Furthermore, as startups often lack the necessary resources to handle these situations, renting office space is a better choice.

Better Location Choice

With a better location, the price of the property should also increase. For instance, buying a property in central Manhattan is typically far more expensive than buying one in texas. Moreover, additional costs like electricity and water may also be higher in more developed locations.

While the rents may also reflect the differentiation, they are more pocket-friendly. You can rent an office space with the same money you may spend on maintenance charges in Manhattan. Consider renting if the location is an essential element of your business.

Lightens Up Financial Burden

In a growing economy, property rates mostly keep increasing in value. While this is an excellent opportunity for real estate investors, it’s not as appealing to startups.

Each year, the cost of buying an office space keeps increasing, making you invest more cash in scaling up. While the recurring costs are minimized with buying an office space, the initial costs often push startups to their demise.

In contrast, renting an office space lightens up the financial burden. In addition to saving on the initial payment, it reduces the cost of setting up the office space. Although you may need to pay an advance for a few months, it doesn’t come close to the burden of buying it.

Where average office rent revolves around $50-60 per sq ft, the average purchase price in the same cities can range between $400-$600 per sq ft. For a 1000 sq ft office space, even if you’re required to pay 3 months in advance, it should cost you around $180K. In contrast, the same property would force you to invest $600K.

Greater Working Capital

We came across a scaling startup with working capital issues a few months back. They had huge orders but didn’t have enough capital to expand and fulfill those. While we couldn’t do anything about the manufacturing process, we were able to find them a suitable office space for rent in Dallas to at least start with the process.

Once they had enough space to sustain their operations, they could contact a major manufacturer to reduce their product cost and shipping.

If they were adamant about buying an office space, they might not have enough capital left to partner with the manufacturer. Although they might have been able to fulfill those orders, they perhaps would’ve needed a new loan.

From the previous example, it’s evident that you can save hundreds of dollars by going the rent way. The bigger office you need, the better savings are achieved in terms of capital investment.

Flexible Agreements

With recent trends favoring rental office spaces more than buying one, flexible agreements have become much more critical and easy to access. As the demand for renting increases, the landowners can offer some form of flexibility to the tenants without losing any money on rent.

For example, you can now access a massive warehouse without paying thousands of dollars in advance. However, if you’re in a market that isn’t competitive enough, you may not get the full benefit of flexible agreements.

Moreover, if you ever need to expand or shift your business elsewhere, flexible agreements allow you to do that.

As you’re not bounded by the liability of the property or a rigid contract, it would be easier for you to scale up or shrink down. Shrinking your operations down when required is much more critical than hustling to scale up.

Minimized Maintenance

There are significant benefits associated with buying an office space, but maintenance isn’t one of them. If you ever think about scaling your business by buying office space, you must consider the maintenance requirements that you’re responsible for.

Maintenance includes electricity, water, roofing, flooring, walls, interiors, and all other regular aspects of the space.

You’re only responsible for paying a fixed maintenance fee with rented office space each month. The landlords handle the maintenance itself. Therefore, you can commit smaller monthly amounts without disrupting your business operations instead of paying hefty repair charges.

You’ll also be able to hold someone legally responsible for the losses you may attract due to lack of maintenance and disruption of operation. This isn’t the case with owning office spaces.

Greater Scalability

Selecting the right office space allows you to move or scale your operations whenever possible. If your existing rented space has scalability opportunities, that’s fine. But if not, you can rent another space to move some or the whole of your operation there. Flexible contracts and easy installations also help in this regard.

Zero Tax Burden

As long as you don’t own the property, you don’t need to pay the property taxes. The landlord may include the taxes in your rent, but you’re not responsible for filing them. If any discrepancies are found in the files, you can’t be held responsible for any of them. However, your capex and opex assets are still taxable irrespective of your choice.

Cons of Renting Office Space

While the benefits far outweigh the drawbacks of renting office space, they aren’t insignificant.

Less Control Over Space

Being an owner gives you much more control over your office space. Although municipal laws may still limit you, the contracts limit changes in a rented office space.

If you ever need to install any additional equipment by boring a hole in the floors, you may need to take permission from the landlord before doing so, which often are disregarded. However, with proper planning and agreement, these issues can be minimized.

As office spaces are meant to be customized, most landlords are flexible enough to allow fixations to an extent.

Increasing Recurring Cost

Each year, your rents may change with the increasing value of properties. While it may not put much pressure on your finances, it still is an inconvenience.

Buying the space only increases the value of your property. Moreover, if you ever need to rent your space, you can increase your rent accordingly. However, in a crashing economy, the real estate markets are the ones to go down first. Recurring costs are a drawback for both renting and owning office space.

Landlord Issues

Landlords often present unconventional issues to the tenants. Noise complaints and legal troubles are the most common issues. However, not every landlord threatens to kick you out every day. Mitigation of landlord issues is possible through careful screening of properties and personal recommendations.

Check the feedback of previous or present tenets before considering renting an office space. Also, consult with a lawyer before signing the contracts. It’s to ensure that you are both on the same page and minimize disagreements.

The Bottom Line

Hopefully, you’ve understood the pros and cons of renting an office space. The pros include minimal maintenance hassle, less financial burden, minimum maintenance, better locations, and scalability. On the other hand, cons, although a few, include increasing cost, less control, and landlord issues.

All these drawbacks are mitigable through scouting the property beforehand and with a solid contract.

In general, renting is far more enticing than owning office space despite the lack of control over your activities.