Are you wondering whether you should buy or lease warehouse space for your business?
There are many factors to consider when you are trying to decide whether you should buy or lease warehouse space. You have to consider what your business needs now. You also have to consider what it will need in the future.
Take the right amount of time to research the best fit for your business before decide one way or the other. You also need time to prepare for the move to ensure a smooth transition to your new space.
There are many different options for warehouse space and the size of your business and location can make a big difference. Smaller brands and businesses may want to use third-party logistics companies that can provide warehouse space and handle e-commerce orders for them. A “warehouse as a service” space solution may be ideal for a startup. These types of services can require a business owner to pay a decent premium. However, they can also offer a lot of flexibility that helps with short-term growth.
Commercial real estate often entails long-term fixed obligations, but there are exceptions. You should make flexibility and scalability top priorities for your business especially if it’s a startup. The last thing you want to do is find yourself on the hook for warehouse space that no longer works for your business. You need the best scenario possible to continue growing your business.
Leasing vs. buying warehouse space
There are many pros and cons to consider for both leasing and buying warehouse space.
Buying warehouse space usually means you have to pay a hefty down payment. You will also have to pay mortgage payments immediately as well as potential renovation costs. A lease will mean there is no down payment and you can also negotiate free months of rent. Landlords will also typically field requests to pay for building improvements or renovations. This means you can secure a warehouse space much cheaper by leasing it.
Mortgages offer little flexibility and your lender won’t be willing to help pay for upgrades to the building. When you own the building, the monthly expenses are your responsibility and you have also to pay for all the upgrades along the way. Having that money to use on growing your business is usually a better investment.
Leasing space makes it easier to buy, build, or lease additional space as your business grows.
Now, leasing also has some drawbacks to consider. There are no tax benefits when you’re leasing property. You are also not building any equity in anything when leasing a business. Once your lease expires you have to sign a new lease or purchase a property with zero credit for previous lease payments.
If you’re in a stable industry and have a good idea of what your business will look like in 5 or 10 years then purchasing may make sense. However, if you’re in need of cash flow, lack capital, or have uncertainty about what the future holds then buying a warehouse space may leave you in a bind.
I’ve seen many situations where the market or business takes an unexpected downturn leaving a company unable to sell and drive into bankruptcy. A lease will at lease provide a predetermined expiration date. Every business has different needs and situations to deal with so it pays to do careful planning.
A warehouse is a home for your business
Here are a few questions you can ask yourself when considering your options:
- Are you able to clearly envision your long-term space needs?
- Do you expect your business to experience significant growth?
- Will your business require a different space in the near future?
- How stable is the local real estate marketplace?
- Are you in a pretty stable industry?
- Do you have excess capital to buy a warehouse space?
- Will leasing a warehouse space free up funds that you can use elsewhere?
These are important questions to consider when you are deciding whether you should buy or lease warehouse space for your business. Once you answer these questions there is still a lot to consider when looking for a location that fits your needs.
Here are some things to do when trying to identify the right space to meet your needs:
Plan your vision for the future
Spend some time figuring out what you will need in a warehouse space. It often helps to consult an experienced tenant representative here. It helps to determine your short, mid, and long-term business and real estate needs. Thinking about your best, worst, and most likely case scenarios will help you build a solid strategy for your business. The goal here is to think about your current needs as well as planning for the future.
It’s often best to start with some basic questions like:
- How much storage space will you need?
- What sort of equipment will be used in this space?
- How high do the ceilings need to be?
- Do you need a yard?
- How much parking will you need?
- Do you need any loading docks?
- What type of space will you need to meet your technological needs?
When exploring your options it’s best to ask yourself as many questions as possible in order to make the best possible decision. Consider your needs for future expansion or changes in your industry and marketplace. You also need to consider your ability to obtain capital and investment needs as well.
Don’t fail to plan in advance
Businesses that fail to plan properly are planning to fail. Don’t wait until the last minute to secure the right warehouse space for your business. It’s a good idea to give yourself 18 to 24 months of preparation time before securing a warehouse space for your business. You can definitely speed up the process, but things tend to go more smoothly when you have the time to plan accordingly. Rushing the process tends to increase the chances of mistakes being made.
Start your preparations by working out a definitive timeline for securing and transitioning into a new warehouse space. Giving yourself sufficient time will allow you to gather as much information on the logistics of moving assets, purchasing needs, and installing equipment as possible. The more you can plan the more likely you are to meet all of your needs on your first attempt. The last thing you want to do is spend time fixing mistakes.
Look into exclusive tenant representation
Having a tenant broker has been through the process before helps you save time, money, and hassle. Good tenant representation will help you with every step in the process. Brokers that specialize in tenant representation don’t have any allegiances to the landlords or developers so you know they’re on your side.
Securing warehouse space shouldn’t be an afterthought and you deserve to have quality assistance. You owe it to your business and yourself to limit your risk and improve your chances of being successful.
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We are always glad to discuss corporate real estate with business owners considering their options. There is also no charge or obligation when it comes to having a discussion. Call us or shoot us an email today so we discuss your needs.