Total Construction explains pros and cons of buying and leasing

TotalTips

The leasing of industrial facilities has always been the domain of distribution operations and businesses that needed large off-site storage capacity.

Now however, many F&B businesses are opting to lease facilities rather than purchasing them. Today’s developers are happy to pay the fit out cost and have it included in the overall lease payments, which tends to suit both parties.

READ: Total Tips – design and building advice for food & beverage manufacturers

However, there are pros and cons when delving into buying or leasing premises. What are some of the advantages of leasing a warehouse, distribution centre or manufacturing building? Here’s a few tips from Total Construction.

Initial start-up costs. Investing in a building can be very costly, especially if you are an onshore manufacturer. While it is a fixed asset, money can be better spent on other more important things that can get a business up and running. This includes automated plant, which in turn saves on labour costs. Maybe the savings can be spent on research and development, and marketing and promoting the newly developed product.

Red tape. Getting compliance from councils can cause a lot of angst and also cost a lot of money. While a manufacturer will have to make sure they comply with their ongoing working conditions, making sure the building meets all the local body and environmental requirements will be up to the building owner.

Building upkeep. Buildings need to be kept up to scratch. Tenants don’t have to worry about repairs or any of the administration that goes into looking after the building – whether it be worrying about the rates bill, plumbing or electrics going haywire, or maintenance due to wear and tear.

Location, location, location. Leasing or renting means you can not only shop around for the best location, but you are not tied down to one place for a long time. This means if things change – whether it be a company’s need to expand, or clients moving to another part of the city, or even to a new city – it gives a manufacturer leeway to not renew the lease.

The Cons

As with any decision made, there are also downsides to leasing a building and/or plant. These include:

Losing capital growth. This can be an issue if you live in a city where commercial space is at a premium. Cities such as Sydney, Melbourne and Brisbane are growing exponentially, and unless the world economy collapses, will be sought after places of business for a long time to come.

Locked in contract. Being locked into a contract means the tenant will have to stay where they are until the contract runs out or pay penalties if the lease is broken. When it comes to the fit out of the warehouse, the tenant has a limited say in how it will look.
Limited say. The owner of the building will have certain terms and conditions that have to be adhered to by the occupant.

Expansion. If your business takes off and you need to expand your operations the owner of the building can call the shots – whether this is allowing a tenant to extend the space available, or the accompanying increase in rent.