Businesses Must Look to Office Ownership

If your business is established, then buying office space as opposed to renting is a sound business decision.

This is according to Charlie Bentel, Managing Director of Bentel Property Consultants, owners of Benvista Office Park based on the East Rand. “The invested equity, debt service and tax benefits do make owning more advantageous than leasing. Aside from the investment benefits aspect of buying, if you have specialised equipment, machinery and IT infrastructure requirements which will require expensive outfitting, you are generally better off buying your office space,” explains Charlie.

“At the moment there is generally an oversupply of A-grade office space rentals which has driven down prices considerably. However, this is a temporary situation, and rentals will increase as market conditions improve. Average rentals start at around R85/sqm and go anywhere up to R180/sqm and are also subject to an average 10% escalation per annum.  

The current low interest rates make buying a very appealing option,” explains Charlie. “The current oversupply of offices has created a very favorable buyers’ market as prices are considerably lower.”

Business owners and entrepreneurs opting to acquire their own business premises stand to benefit from the following:
  • Buying the property gives you full time ownership, which means you have an asset capable of rendering a return in the form of a pension for retirement planning or future rental income should you need to relocate.
  • Any capital expenditure you invest in your property such as upgrading fixtures, carpeting, tiles and lighting all serve to enhance the value of your property.
  • Ownership enables long term planning and better utilisation of your capital.
  • Some banks are now offering businesses very low deposit requirements based on the strength of the business, which means you don’t have to dig into your cash flow for a deposit.
  • “Given these considerations, it makes business sense to buy and own your property – and an asset - at the end of the day,” says Charlie.
  • Granted there are important considerations to make when buying office space such as:
  • Location is a crucially important consideration when it comes to appreciation, resale or renting the space out to other tenants.
  • Defining and understanding your needs. Make sure the decision to buy a building fits in with your business plan.
  • Allow flexibility for growth or contraction.
  • Evaluate the opportunity as an investment as well as how the property fits your needs. Do a rent versus buy analysis as a part of your financial analysis.
  • Do space planning and costing as part of your cost exercise.
  • Assess the opportunity of buying the property into your own structured property company and renting it to yourself or another tenant.

In doing a ‘rent versus buy’ financial analysis on a commercial property of 110m², over a ten year period, comparing a rental of R85/sqm subject to a 10% annual escalation versus a bond repayment over a ten year period on a loan of R1million, at an interest rate of 9% with a 10% deposit given, the following applies:
  • By the end of the third year, the monthly rental amount of R12 384 will exceed your bond repayments of R11 400 per month.
  • By year eight, your monthly rental will exceed your bond repayments by almost R7000 per month.
  • By year ten, you will have paid just short of R1.8 million in rental for a property you do not own or have any rights on.
  • If you bought, by year ten your bond will be fully paid off, you will own an asset that has appreciated in value over the years, and you would have paid over R400 000 less than you would have paid on rent over the same period.   

“Given these figures, it makes good financial sense for owners of small and medium sized-businesses to look at buying their office space as an alternative to renting.  Renting is usually a good option for large businesses that have considerable expansion and contraction issues or where long term planning is not possible.  However, it’s in the interests of the smaller business owner to buy and ensure better utilisation of their capital expenditure by building up an asset base which also adds to the value of the business at the end of the day,” concludes Charlie.

  Comment on this Article

  Please login to post comments

Post to my facebook wall
Characters remaining

    Latest Property News
    • 23 Mar 2018
      Durban’s rightful place on the ‘global map’ has been reaffirmed with the recent launch of the new Durban Monopoly board game. The second city in South Africa to be featured after Cape Town, the Durban edition features well-known landmarks such as Moses Mabhida Stadium, uShaka Marine World and The Pavilion Shopping Centre, among others.
    • 23 Mar 2018
      On Show Days, it's essential that you stand out from the crowd. Highlighting your home's finest features could help turn a browser into a buyer. We take a look at some tips to help you achieve the best possible result.
    • 23 Mar 2018
      After a distinctly lacklustre year during which a flood of new homes entered the market to vie for the diminishing attention of increasingly nervous investors, the housing market in Bedfordview kicked off 2018 with encouraging signs of recovery.
    • 22 Mar 2018
      Sustainability is currently a hot topic in the home and construction sector. In light of the progressing climate change and shrinking resources worldwide, it’s one of the most important issues to consider. Sustainable living is the practice of reducing your demand on natural resources by making sure that you replace what you use to the best of your ability.
    • 22 Mar 2018
      The 1% VAT increase which is set to take effect as of 1 April 2018 has set the country alight with many burning questions, most of which cannot be comprehensively answered by our knowledgeable friend Google.
    • 22 Mar 2018
      The picturesque and oft-misty town of Dullstroom in Mpumalanga belies its name. Judging by the rapidly increasing influx of weekend visitors, many of whom then look to acquire property here, it’s anything but dull, quips Anton Greeff, Pam Golding Properties area principal.
    • 20 Mar 2018
      Located close to the fast growing Fourways precinct, Dainfern continues to attract local and international interest from buyers seeking a secure lifestyle with affordable entry price of approximately R3 million.
    • 20 Mar 2018
      Property owners in the Durban CBD are addressing the affordability challenge that faces many prospective tenants in their area – and reconfiguring the inner city rental market in the process.
    Subscribe to the MyProperty Newsletter

    Last Name  
    Email Address  
    Email Frequency
    Share this Page

    For Sale Property
    Rental Property
    More Options
    Connect with us