A new client of ours would like to own its own building. It is a successful technology business and wants the security of having space it can grow into in the future. But does owning really make more sense than renting, particularly in these uncertain times?
In the UK, we have a culture of owning our homes rather than renting. This leads many to assume by default that owning property of almost any kind, is preferable to renting.
One major reason in favour of ownership that is often cited is that rent is “money down the drain”. By contrast, investing in bricks and mortar means you stand a good chance of recovering all your capital and possibly more, when you come to sell. In fact, if you get your timing right, there is a chance you might make a tidy profit. At least that is the theory.
This all sounds very plausible. However, there is a flipside. This relates to the hidden costs of property ownership, in all its guises. Here are just three examples of those “hidden costs” for you to consider.
1. Technical Obsolescence
In office buildings, technical obsolescence is a major risk. For example, consider air conditioning systems. These have a limited lifespan, typically 15 years. They are expensive to replace and the costs can rarely be passed on to any tenants you may have. The same is true of passenger lifts and lighting systems, not to mention roofs and gutters. In fact, any major costs that are attributable to technical obsolescence or inherent defects are something the building owner will usually have to bear. So factor these into your appraisal.
2. Lack of Liquidity
Another factor worth bearing in mind is that a commercial property is not as liquid an asset as say, your average house. Depending on the market conditions at the time, it could take many months or even years, to either sell or let your property. This in itself could cause huge challenges for your business should it ever need to relocate or realise its capital investment.
3. Valuation Impact
Another aspect which is often overlooking is the impact that property ownership can have on the valuation of the business itself. For example, if a corporate investor is looking to buy shares in an I-T business, any property interests the company has will tend to be viewed as a non-core business risk rather than an asset. After all, the investor is interested in investing in an I-T business not a property company.
So, buying a property needs to be considered very carefully indeed no matter how attractive it might at first appear.
If you would like more information on buying a commercial property, please call Martyn Markland on 0161 457 1422 or email him at mm@tenantag.co.uk.
