Choosing whether to purchase an existing building, rent an office or build a brand new space for your business can be a tricky decision. There are many factors to consider and there are benefits and drawbacks to each. Building your own office is often a desirable option as there is much more flexibility in location, design and it can put you in stead for a solid long-term investment, however, it also has the potential to include costs you may not have considered such as extreme weather delay costs, encountering significant rock on the construction site or vacuum excavations.
Below is a list of the pros and cons of building a new commercial building. Weigh up your options carefully and be sure to consider the following:
Pros to building your office
Freedom to design a space that suits your needs
The first and most obvious benefit of building your own office is the ability to customise the design to suit your exact needs, especially if you are operating a niche business that has specific requirements. Often when renting an office space compromises are made as the ‘perfect’ floorplan is almost impossible to find. Building from the ground up allows you to optimise the space and create the most desirable floor plan possible.
No landlord = fixed costs
With rising rents a continuing costing factor for businesses, owning the building removes the element of surprise and your costs will be less varied than if in the hands of a landlord, who may increase rent as they desire.
Potential additional revenue stream
If you are able to create multiple office spaces you have the potential to generate your own income through renting out the additional rooms. This can be an excellent way to help offset any loan repayments you may be making.
Make your own rules
Say goodbye to the ‘office rules’ that don’t allow pets at work – you make the rules now! These days flexibility is a big drawcard for employees and having quirky, fun allowances can help you pull in better talent and retain staff long–term.
There are many tax benefits to owning commercial property including deductions on interest on the mortgage, maintenance expenses and in some instances GST savings on the purchase price. Consult with your Accountant to maximise this opportunity.
Cons to building your office
Higher upfront costs
There is no getting around the fact when building an office there will be significantly higher upfront costs. The financial impact including pulling together a deposit, covering insurance, paying taxes and ongoing loan repayments needs to be thoroughly considered and if not viable, renting in the short term may prove more financially achievable until you are able to cover the costs.
Long-term uncertainty of business
Building your own office is a long-term investment and if you are relying on the success of your business to fund it, there is a level of risk involved. 48% of new businesses fail within the first four years of operating, so it is important to have contingency plans in place, especially if you are starting a new business.
Maintenance will be your responsibility
When renting most of the maintenance of the building will be managed by your landlord. If you own the building – you are the landlord. Any ongoing or unexpected maintenance costs will fall to you, and if you have issues that could be hazardous to your employees or tenants they will need to be dealt with in a timely manner.
The rise of flexible work
With the rise of flexible and work-from-home arrangements, there are many employees who may be put off having to go to an office environment on a regular basis. If your line of business does not necessarily require in-office attendance, consider whether having a physical space that requires significant investment from yourself is the right option.
Longer period of time to operationalise
Building an entirely new space will take more time than renting an existing building. If you are under pressure to operationalise your business as quickly as possible then building a new space may put you under undue stress. Alternatively, renting short time while construction takes place could be an option.
The pros and cons of building commercial property are varied, however, if viable there is significant upside for those willing to take the plunge.