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Why buying commercial space is better than build-to-suit leases

On Behalf of | Jun 8, 2023 | Real Estate

When starting a business or moving a small home operation into a more professional space, many owners and entrepreneurs instinctively choose a lease instead of purchasing property. Especially now that landlords sometimes offer build-to-suit leases where they completely renovate commercial units for prospective tenants, the idea of buying a commercial property sometimes seems outdated or even silly.

However, while a build-to-suit lease may be convenient, it is far from the only option and isn’t always the best one. Successful entrepreneurs and business managers may eventually come to realize that purchasing commercial property can be a better option. The two reasons below are common explanations people give for preferring ownership to a build-to-suit commercial lease.

Businesses pay a premium for build-to-suit properties

When looking at the cost per square foot, the lease expenses for a build-to-suit property could easily be several times higher than the rent on a turnkey space in the same neighborhood. While commercial landlords are often eager to get tenant feedback about every cosmetic detail, the tenants will have very little control over the companies they use to do the work or the cost passed on through their lease. It would often be feasible for the tenant to make the same repairs and changes to the property for a fraction of the price assessed and a bill to suit lease.

Owners have more control over purchased property

Tenants have very little control over what their landlord does. There are scenarios in which a tenant may invest quite a bit in establishing an upscale facility, such as a therapy office or dental practice, only to have a very disreputable business move into the suite next door. Unsavory clientele could easily chase away consumers and leave someone trapped in a high-cost lease with few options for recouping what they have invested. Additionally, the tenant will often require landlord approval to make any future modifications to the unit or to completely change the type of business that they perform at the facility. When purchasing a commercial property, a business has control over what other tenants, if any, make use of the space.

When a business owns their commercial space, they will also benefit from slowly building equity in the property, which may eventually turn into one of the biggest assets for the organization, whereas rent is often the biggest ongoing liability. Carefully considering the drawbacks of build-to-suit commercial leases could help those looking to expand their operations make truly informed decisions about their need for a new space.