Tuti Fruity
Lease-Versus-Buy
Cost
Analysis
By Steven R. Price, CCIM
Eventually, most users of commercial space ask themselves the question “Should I lease or purchase?” The answer lies in a thoughtful assessment of numerous subjective questions and a thorough, objective analysis of the cash flows aftertax of the lease-versus-own alternatives. In addition, the decision to lease or own is often driven by the cash needs of the business owner; the space needs of the business; whether the space is retail, office, industrial, mixeduse, or special use; the importance of branding, protecting, or creating trade areas; establishing franchise value; or other circumstances. When considering whether to lease or own, users of commercial space need to recognize and evaluate the advantages and disadvantages of each alternative.
Advantages of Leasing
Location: Leasing can allow a user to occupy space at a premier location, or in a synergistic multi-tenant environment, that the user otherwise couldn’t afford. Spatial Flexibility/Mobility: Leasing can provide greater flexibility to a user who many need to expand or contract, and can provide mobility if a user needs or wants to relocate. Availability of Cash: Leasing typically requires less cash out of pocket than ownership alternatives, leaving more capital to invest in the user’s products and services or to establish additional locations. Source of Financing: Leasing can be viewed as a source of financing, since many small or marginally profitable firms may find traditional financing difficult to obtain. Stability of Costs: The long-term occupancy costs of leasing, when viewed from the user’s perspective, are generally simple to estimate and typically include base rent
Steven R. Price, CCIM, Benson Price Commercial, Colorado Springs, Colorado, has a national tenant representation and consulting practice. He was the 2006 President of the CCIM Institute and is a Senior CCIM Instructor.
Leasing
Leasing is a means for a user to
Cost
Analysis
By Steven R. Price, CCIM
Eventually, most users of commercial space ask themselves the question “Should I lease or purchase?” The answer lies in a thoughtful assessment of numerous subjective questions and a thorough, objective analysis of the cash flows aftertax of the lease-versus-own alternatives. In addition, the decision to lease or own is often driven by the cash needs of the business owner; the space needs of the business; whether the space is retail, office, industrial, mixeduse, or special use; the importance of branding, protecting, or creating trade areas; establishing franchise value; or other circumstances. When considering whether to lease or own, users of commercial space need to recognize and evaluate the advantages and disadvantages of each alternative.
Advantages of Leasing
Location: Leasing can allow a user to occupy space at a premier location, or in a synergistic multi-tenant environment, that the user otherwise couldn’t afford. Spatial Flexibility/Mobility: Leasing can provide greater flexibility to a user who many need to expand or contract, and can provide mobility if a user needs or wants to relocate. Availability of Cash: Leasing typically requires less cash out of pocket than ownership alternatives, leaving more capital to invest in the user’s products and services or to establish additional locations. Source of Financing: Leasing can be viewed as a source of financing, since many small or marginally profitable firms may find traditional financing difficult to obtain. Stability of Costs: The long-term occupancy costs of leasing, when viewed from the user’s perspective, are generally simple to estimate and typically include base rent
Steven R. Price, CCIM, Benson Price Commercial, Colorado Springs, Colorado, has a national tenant representation and consulting practice. He was the 2006 President of the CCIM Institute and is a Senior CCIM Instructor.
Leasing
Leasing is a means for a user to