If you’re running a small startup or a mid-sized business and are looking for suitable office space in New York City, you might be considering two significant options. Should you rent Manhattan office space or buy an office space and be your own landlord?
The answer, in short, is: it depends. It might sound like a cliche, but this decision should not be taken lightly, and you must weigh the pros and cons before committing to one option or the other. Commercial real estate agreements involve a lot of paperwork, negotiation, and can take quite some time, so you have to make sure you’re making the right decision for your business, now and in the long run.
To help with this tricky decision, we’re rounding up the essential pros and cons of renting versus buying office space in Manhattan or elsewhere. Before making such a decision, make sure you analyze these factors to see which option is a better fit for your company.
Pros and cons of buying office space
Let’s start by looking at the biggest pros and cons of buying your own office space, thus bypassing landlords and taking on all the control, but also the responsibility.
- Complete control: By owning an office condo, you no longer have to answer to landlords and have full control over your space. You have the freedom to build out and furnish the space in whichever way you see fit and make upgrades whenever you want, without waiting for approval from a landlord.
- Extra income possibilities: If your business is in the early stages of growth and you think you might need to expand soon, you can purchase a bigger space and sublet it to other tenants. In this way, you’ll earn extra income from subletting while still having the option for expansion if you ever need it.
- Appreciation: In hot markets like New York City or Los Angeles, property values tend to appreciate in time, especially if you own space in a popular neighborhood with lots of development potential. This means that, should you decide to sell your space down the line, you’ll be able to make a nice profit.
- Stability: Moving offices is never a pleasant experience, as moving all your staff, your furniture, and your equipment can be stressful for everyone involved. By owning your space, you’ll be able to stay put for as long as you’d like and create a genuine connection to the neighborhood and the local community.
- No flexibility: While stability can be an advantage when owning your office space, it can also be a disadvantage. Let’s say your company is growing and your current space can no longer accommodate you; the only option you have is to buy or lease another space or sell your existing property and move, starting from scratch.
- High upfront costs: Buying your own office space involves more upfront costs than leasing a space. Before you even move into your new office, you’ll have to pay property, appraisal, and maintenance costs. Additionally, you’ll have to put up a hefty down payment and invest upfront in any necessary upgrades or build-outs.
- Fluctuating business conditions: While property in NYC is usually considered an excellent long-term investment, unforeseen events can lead your property to depreciate. Economic conditions and interest rates can fluctuate heavily during times of crisis, such as the Covid19 pandemic, and your bottom line might have to suffer.
- Added responsibilities: Owning your office space means that you’ll have to take on dual roles as tenant and landlord. Handling all of the tasks that a landlord usually tackles will take up a big chunk of your time, which you might be better off spending on growing your business.
Pros and cons of leasing office space
Renting office space in New York City, or anywhere else for that matter, comes with its own challenges and benefits. We’ll go through the most important ones you should consider in your decision-making process.
- Flexibility: When deciding to buy an office condo, you’re making a long-term investment. But if you’re not sure how your business will evolve in the next few years, leasing might be a better option. You can sign leases for three, five, or ten years, but you can also find spaces to rent for one year with the possibility of extension. The current uncertainty surrounding the NYC office market, and business landscape in general, has led many companies to sign shorter-term leases and see how the market evolves.
- More affordable upfront: Leasing an office space is a more straightforward financial option, and it can be a quicker process, especially if you work with an experienced broker. You won’t have to shell out a down payment or worry about appraisal costs; all you’ll need to do is negotiate your rent. Nowadays, some landlords even offer months of free rent to attract tenants, which can be an added incentive to lease office space.
- Shared responsibility: If you decide to rent an office space instead of buying, you won’t have to worry about all the property-related tasks on your own. Your landlord will handle most of these tasks, including maintenance, repairs, renovations, or upgrades, and you’ll have more time to dedicate to growing your business.
- Costs can vary: If you decide to be an office tenant instead of an owner, you’ll be at the mercy of changing business conditions and trends. Office rents in NYC can be notoriously pricey, especially if you choose a prestigious and sought-after neighborhood. Your landlord might also raise your rent once every few years, and you’ll have to negotiate any upgrades or build-outs you might require for the space you occupy.
- No equity: When you own commercial real estate in NYC, even if your property does not appreciate, you’re still building equity. If you decide to lease office space, however, you won’t have this advantage. You won’t be able to use the space as collateral or sell it to fund your retirement.
- No control over your space: As a tenant, you won’t be able to undertake any build-outs or changes to the space without your landlord’s permission. Depending on the type of lease you sign, you might have to pay for these improvements yourself, but you’ll still require approval for any modifications.
- No stability: When you lease office space, you’re basically at the mercy of your landlord. Your landlord might impose rent hikes, as well as different restrictions or termination clauses that you have no control over. If your lease expires or you go out of business, your landlord might commence eviction procedures, and you will still be liable for rent payments or penalties.
How to make the best decision for your specific business needs
When deciding between purchasing an office condo or leasing office space from a landlord, your due diligence is the most important thing to do. Please don’t rush into anything, carefully consider all the aspects we’ve discussed above, and don’t go at it alone. Working with an experienced local broker who knows the ins and outs of the market and can read the fine print in real estate agreements can make all the difference in the world. What’s more, an excellent commercial real estate broker can help you pick the best location for your business and negotiate the best possible terms on your behalf.
Are you thinking of setting up your business in a convenient location in Manhattan, and are looking to lease space in a modern building offering state-of-the-art amenities? Then reach out to us and we will show you worthwhile space situated right in the heart of New York City. To learn about available office space, call Metro Manhattan Office Space at (212) 444-2241 or email us at [email protected]