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Is it Better to Rent or to Purchase Business Premises in Slovenia?
12.02.2008 ob 06:30There is increasingly less investing in real estate for own business needs
Investors who invest in business premises are realising that companies are increasingly opting for renting rather than purchasing business premises. This includes not only renting offices, shops and premises for service activities, but also increased renting of logistics centres and production facilities. The reason is that the mentality in Slovenian companies has changed and investing in real estate for their own needs is in decline. More and more companies have been renting real estate – business premises - so there is increasingly less investing for their own needs. Renting business premises is wise mostly for one reason: tenancy allows a company to conduct its business in a more flexible manner and thus relieve the balance sheet.
Companies prefer renting premises
Companies worldwide mostly decide on renting the premises they require for their operations. In Slovenia, we are still more inclined to ownership; however, new habits are rapidly being introduced in Slovenia as well. Hence, some companies are deciding on renting business premises, while others invest in their own real estate, thus remaining owners. Yet another group of companies, mostly represented by the big trading companies, transfer their ownership and real estate management they hold as tenants to their subsidiaries which then run and manage them. Worldwide companies are deciding on renting real estate mainly in business buildings with regulated tenancy relations, of which there is relatively little in Slovenia.
To purchase or to rent business premises?
Be it a law firm, a shop or a yoga studio, sooner or later each company must decide whether it will buy or rent the premises for its own needs. Before making this decision, quite a few factors that could have a powerful impact on a company’s operations should be taken into consideration. This decision is particularly important for smaller companies that do not have extensive financial resources at their disposal when starting up their businesses, which they could allocate for the purchase of real estate in cases when this is of secondary importance for the company’s operations.
We will only list a few of such decisive factors:
• The required initial financial investment is significantly lower when renting real estate than when purchasing it. There is no need to become indebted, take out a loan or lease in order to rent an office. This leaves the company with greater opportunities to take out loans and become indebted for equipment, machines, and other means required for starting up a business.
• Monthly costs – the renting of business premises represents a fixed monthly cost that enables more flexible operations for a company and relieves the balance sheet.
• The real estate value growth factor - in case of purchasing business premises.
• The factor of increasing the value of your own capital by purchasing real estate.
• When owning business premises for your own needs, a dilemma may occur when it comes to expanding your company’s activities – the need for bigger business premises due to greater capacity.
• Purchasing real estate that is bigger than the actual required size of business premises means an additional activity for you: a real estate business - renting and managing real estate.
• The tax liability factor in owning and renting real estate.
Therefore, renting rather than purchasing business premises appeals more to the companies that are simply not interested in bigger real estate investments and in which the requirements for business premises undergo constant changes. Generally, this is the case of the majority of SMEs where the location of the real estate and their activities does not represent the reason for their business success.
Urška Č.
Sources: Informacijska borza nepremičnin, Finance.si, www.microsoft.com: Buy or rent office space? Here's how to decide by Joseph Anthony, Microsoft Small Business Center.
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