A pending lease expiry is often time for tenants to reflect on whether their office, warehouse or retail storefront is working effectively for their business.
But along with considering whether an expansion or consolidation is necessary, there’s often a bigger question looming: Should you continue leasing or pivot and purchase your own commercial space?
In short, leasing provides more flexibility while owning your commercial space allows you to save on monthly rent payments and invest in a physical asset.
Business owners must weigh their options based on their company’s current size, growth trajectory and cash flow, among other factors.
With plenty of leasing and ownership options available across Ottawa, Merkburn Holdings – a locally headquartered commercial real estate leasing and property management firm – broke down some of the considerations for business owners and managers.
“There’s advantages to owning real estate,” says Kevin Rougeau, a managing partner at Merkburn Holdings. “But there’s also a cost and substantial amount of time that needs to be spent managing the facility.”
When to lease
You don't know your longterm needs
How big will your business be in five or 10 years?
One of the biggest advantages of leasing commercial space is that you don’t need to answer this question.
If you’re a fast-growing startup or an established firm in a rapidly changing industry, it’s hard to predict your physical space requirements several years down the line.
Leasing gives you the flexibility to scale up or down as your lease turns over. Additionally, Rougeau says an engaged landlord will work with tenants to understand their requirements and can add additional flexibility, such as options to expand mid-lease.
You're looking for a specific location
By definition, leased properties turn over regularly, meaning there’s a wide variety of spaces from which to choose.
Do you want to be in the heart of Hintonburg? Is quick access to the Queensway important to running your business efficiently?
Working with a landlord that oversees a diverse property portfolio will help you find a space that supports your organization’s operations.
You're keen to customize your space
Many businesses view their office as a blank canvas, but typically lack the experience in turning a vision of their ideal commercial space into a reality.
A good landlord prides themselves on being able to customize space to meet their tenant’s requirements. Merkburn Holdings, for example, has installed new exterior doors, loading ramps and undertaken other turnkey fit-ups to create environments that suit the unique needs of its tenants.
When to buy
You have capital to deploy
Many businesses need to facilitate their growth through investments in staff training, vehicles or additional machinery. In other cases, however, a business may have capital that would be best allocated to a real estate investment that negates monthly rental expenses.
You're good with tools (or know who to call)
Pipes can break, roofs can leak and lights occasionally flicker. When you own your own building, it’s your responsibility to address these inconveniences.
There is, however, a workaround. Some commercial real estate firms, such as Merkburn Holdings, provide third-party property management. This means you can focus on running your business, rather than running your building. When selecting a property manager, it’s often advantageous to pick one based locally since they’re more likely to be able to respond quickly and have a strong network of local suppliers and contractors.
“We’re here in Ottawa. If there’s a problem, we can respond quickly, we have the resources in Ottawa, an advantage over property management firms headquartered outside of the city,” says Rougeau.
Predictability is part of your business
Commercial real estate ownership works best for well-established businesses that are growing steadily. With a reasonably concrete business outlook, there’s less of a risk that you’ll be carrying excess space if your market goes into a downturn, for example.
Case study: ICOR Technology
ICOR Technology manufactures robots, tools and equipment for explosive disposal experts and police SWAT teams around the globe.
Though the firm operates out of a building in the city’s east end, it has benefited from investing in commercial real estate as a means of diversifying the company’s portfolio. This includes a building at 308 Legget Dr., located on the other end of town in Kanata. ICOR’s executives brought Merkburn Holdings in to manage the property after seeing how much work goes into running a commercial space.
“It was too much for us – we have a business to run,” says ICOR Technology president Hany Guirguis.
In shopping around for a property management firm, Guirguis and his colleagues found that many of them are based in the GTA and not easily accessible for day-to-day inquiries or issues.
“We felt they weren’t going to take care of the tenants as well,” says Guirguis.
Considering your next move? Merkburn Holdings has a diverse portfolio of office and industrial properties across Ottawa. Check out Merkburn.com for leasing opportunities and info on the firm’s third party property management services.