Many new business owners will find themselves facing the choice between renting or buying a warehouse. There is no one right answer to this dilemma as there are pros and cons to both leasing and owning. But ultimately, the decision should be made based on the individual needs and available capital of each business.
There are a number of factors to consider when making the decision to buy or lease a warehouse such as available capital, projected future growth, storage and space requirements, and more. However, whether you decide to rent or buy a warehouse, MACRACK will design the perfect storage solution for your business. Call us today on 07 3343 9788 to find out how we can maximise the storage capacity of your warehouse.
The Advantages Of Buying A Warehouse
Flexibility
One advantage of buying a warehouse rather than renting is the flexibility that comes with owning the property. In a rented space you have to seek the permission of the landlord before making any permanent changes to the property which can limit your options for pallet racking, mezzanine floors, and layout adjustments.
Conversely, if you are the owner of the property you are free to make any changes you require to facilitate the growth of your business, such as building extensions or renovations to increase the storage capacity of your space. This also means that you can choose the perfect pallet racking system to maximise storage and optimise your processes rather than potentially having to use a racking system that someone else has had installed.
Stability
Another advantage of owning your own warehouse is the stability that comes with a mortgage. Unlike rental rates that can increase annually as well as with the renewal of every new lease, mortgage repayments tend to fluctuate a lot less, allowing for accurate financial planning for the future of your business.
Owning your own warehouse also gives you the stability of growing your business from one location. Conversely, in a rented space your landlord could decide not to renew the lease for any reason, resulting in a costly relocation that will set your business back financially and potentially cause you to lose your local clients.
Equity
Buying a commercial property is similar to buying a residential property in that it is an investment that can potentially grow in value. As the worth of the property increases as your business grows it can also be used as equity in loans to help grow your business. Additionally, the property can be sold if your business requires capital for any reason.
The Disadvantages Of Buying A Warehouse
High Upfront Cost
One obvious disadvantage of buying a warehouse rather than renting is the high upfront cost of the deposit. Unlike residential properties where a deposit of only 5% may be enough when buying a commercial property, you can expect to pay anywhere from 20% to 40% upfront. The lack of available capital due to the large deposit could seriously stunt the growth of a less established business.
Building Maintenance
Another downside of buying rather than renting a warehouse is that you are responsible for organising and funding all building maintenance including council rates and other annual costs. This is not only an additional cost that you need to factor in, it will also require time and organisation that could be better spent on growing your business.
Less Financial Flexibility
Although the flexibility of having the option to fit out and renovate your warehouse when required is an advantage of buying a warehouse, there are also aspects of reduced flexibility when you own a commercial property.
For example, commercial properties in Australia tend to stay on the market for months before selling. This means that if your business undergoes rapid growth you may not be able to take advantage of the potential for more growth until your warehouse has sold. Additionally, at the time that your business is growing if the property market isn’t right you’ll be facing a choice between staying in your current warehouse and stunting the growth of your business, or selling your property for less than you paid for it.
Another example of the reduced flexibility of owning a warehouse is tied up capital. Because of the large deposit required to purchase a rental property, a large amount of your businesses’ capital will be tied up in your investment. This means that your business will have less financial flexibility to take advantage of any opportunities for growth that may arise.
The Advantages Of Leasing A Warehouse
More Options
Because there are generally more warehouses available to rent than buy, leasing a warehouse provides the advantage of having more options. This means that you are much more likely to find a warehouse that is well suited to your needs in terms of size, location, amenities, and even equipment.
Flexibility
Leasing a warehouse comes with business flexibility as you are free to move to a larger facility as your business grows. Plus, since leasing a warehouse does not require a large deposit, you will have the capital available to take full advantage of any growth opportunities or use the available money to develop your business.
Renting a warehouse rather than buying also makes it easier to run your business from multiple locations as you won’t have to pay the sizeable deposit, maintenance and upkeep costs for each new location.
Free Building Maintenance
Another advantage of leasing a warehouse is that general building maintenance is the responsibility of the landlord, allowing you to put all of your time and money towards the growth of your business.
The Disadvantages Of Leasing A Warehouse
Fluctuating Rates
Leasing a warehouse comes with the disadvantage of fluctuating rental rates. This is because the monthly rate is generally subject to annual rent increases as well as a potential increase in rent every time the lease is renewed. The potential fluctuation of rent costs makes it much more difficult to plan for future costs and growth.
Unreliable Location
Another disadvantage of leasing a warehouse is that if the landlord decides not to renew your lease you will have to relocate your business. Not only is this costly financially, it can also mean that you may have to move on short notice, which can result in having to relocate to a warehouse that is less suited to your products and operations.
Less Control
Leasing a warehouse also comes with the disadvantage of having little to no control over what happens to the building. This can seriously affect the growth and productivity of your business as the landlord has the final say on everything, from approving a layout change to selling the property and forcing your business to relocate.
This means that if your business is expanding you may have to move, whereas, if you owned the property you could simply build an extension to facilitate future growth. Additionally, the warehouse may already come with pallet racking that is not ideally suited to your product range which can limit productivity.
No Equity
Finally, if you decide to rent a warehouse your sizeable monthly payments will be paying off someone else’s mortgage. However, you will have no equity in the building as you are only leasing, which will lend your business no capital benefit.
Expanding As A Tenant Or Owner
Are you facing the choice between stunting the growth of your business or undergoing a costly warehouse relocation? MACRACK has the solution. Our freestanding warehouse mezzanine floors can be used to maximise storage capacity by taking advantage of unused air space. Mezzanine floors are great for both leased and owned warehouses as they can move with you when you decide to relocate, or be used to increase the floorspace and value of your property when you decide to sell.
Whether you choose to rent or buy a warehouse, MACRACK can build you a custom storage solution specifically designed for your product range and warehouse operations.
Note: Business owners should also seek both legal and accounting advice before making any large business decisions such as leasing or buying a new premises.