Buying usually costs less per month than renting the equivalent space, and builds an asset. Renting costs more monthly but preserves flexibility and ties up far less capital. The right answer depends less on the arithmetic than on how certain you are about the next ten years.
The case for buying
The monthly cost is often lower. A commercial mortgage payment on a unit is frequently less than the rent on a comparable one, particularly with a reasonable deposit.
You build an asset. Rent is gone. Mortgage payments buy something you own, and Leicestershire's industrial and office stock has generally held value well given the county's position on the motorway network.
Certainty. No rent reviews, no landlord deciding not to renew, no relocating a workshop because the lease ended.
You can adapt the building without seeking consent for every alteration.
It can support retirement planning. Many owner-managers hold premises personally or in a pension and let them to the trading business, creating a rental income that continues after they sell or wind down the company. That needs proper accountancy and pension advice, but it is a common and legitimate structure.
The case for renting
Capital stays in the business. A 30% deposit on premises is capital not spent on stock, equipment or people. For a growing business, that is frequently the better use of the money.
Flexibility. If you outgrow the space, or the business changes direction, you move at the end of the lease. Selling a commercial building takes months and is not guaranteed.
Someone else owns the risk. Roof, structure, and — depending on the lease — much of the maintenance.
Speed. A lease can be agreed in weeks. A purchase takes six to twelve.
It is easier to reverse. A wrong-sized building you own is a much larger problem than a wrong-sized building you rent.
The costs each side hides
Both options carry costs people leave out of the comparison.
Buying:
- Deposit, typically 25% to 40%
- Stamp duty, at commercial rates
- VAT, where the property is subject to an option to tax — and lenders generally will not fund it
- Commercial valuation, considerably more than a residential one
- Legal fees, higher than residential
- Building insurance, repairs, and eventual structural work
- Business rates — payable either way, but yours to deal with
Renting:
- Rent deposit, often three to twelve months
- Legal fees on the lease
- Repairing obligations. A full repairing and insuring lease can leave you liable for the condition of a building you do not own, including dilapidations at the end of the term — a bill that regularly surprises tenants
- Rent reviews, usually upward-only
- Service charge, where the building is shared
Dilapidations deserve particular attention. Businesses budget for rent and forget that a landlord can require the premises to be returned in a specified condition, sometimes at substantial cost.
The question that actually decides it
Not "which is cheaper per month". It is:
How confident are you in your space requirement over the next ten years?
If you know the business will need roughly this much space in this area for the foreseeable future, buying is usually the stronger long-term decision.
If you are growing quickly, or the model may change, or you might need to be somewhere else — rent, and revisit it later. The flexibility genuinely has value, and paying for it is not a failure.
A middle route
Many businesses lease first and buy later, once the space requirement has settled and there is capital available. That is a perfectly sensible sequence rather than a compromise.
Some negotiate an option to purchase into a lease, giving the right to buy at a defined point. Worth asking about; landlords do not always refuse.
The Leicestershire context
Two local factors worth weighing.
Supply is reasonable. The county's position on the M1 and M69, and the concentration of logistics and light industrial activity around Lutterworth, Magna Park and the Enderby and Braunstone corridor, means standard industrial units come to market fairly regularly. That cuts both ways — easier to find something suitable, and easier for a future buyer or tenant to find an alternative to yours.
Standard specification protects you. A conventional steel-portal industrial unit with decent access and parking will re-let or resell to a wide range of occupiers. A heavily adapted building suited to one process will not, and both valuers and lenders discount for it.
If you are buying and there is any chance you will move on within a decade, favour the unremarkable building over the perfectly tailored one. It costs less to finance and it is far easier to exit.
Get advice on the structure before you buy
If you decide to buy, how you hold the property — personally, through the trading company, through a separate company, or in a pension — has significant tax consequences.
That is an accountant's and a pension adviser's question. Take that advice first; we will arrange lending that fits whatever structure you choose. We do not provide tax or pension advice.
Call 0116 277 7536 or see commercial mortgages in Leicester.
More guides: commercial finance guides for Leicester.
