As your business start-up grows, you may need to either buy or rent more office space. Read our guide to renting or buying office space so you can choose the best solution for your business.
Expanding your small business is an exciting but challenging prospect. Growing your start-up often involves taking on new employees but it can be a challenge to find space for these new additions in your existing offices. You may need to look for new office space, rent extra floor space or buy additional space such as expanding a workshop or extending an office.
But before you sign a lease or look to purchase additional or new office space, take time to carefully assess your needs. Could alternatives such as flexible working, hot desking or remote working ease the pressure on your existing office space? Investing in laptops rather than bulky desktop PCs, decluttering and buying smarter storage can be cheaper alternatives until you absolutely need to expand floor space.
Should I rent additional office space?
Renting or leasing additional office space is usually the best option for small businesses that have limited resources to spend on capital investments such as property assets.
There are two ways to lease office space. Conventional leases allow you to utilise the office space how you want to, with charges based on price per square foot. You’ll need to equip the office with furniture, and pay insurance and maintenance. Flexible leases include furniture and maintenance. These can be rented for shorter periods of time but are often more expensive than conventional leases.
Advantages of renting office space
- Renting additional office space is cheaper – normally a deposit and monthly payments that you can budget for. Rental can be deducted as a business tax, meaning you’ll pay less Corporation Tax in revenue.
- Renting gives you flexibility, allowing you to expand quickly into further office space if it’s available, and in prime locations renting is often the only option compared to buying a leasehold or freehold on a property.
- There’s less work – make sure your lease ensures the landlord or letting agent is responsible for maintenance, and be clear what services are included.
Disadvantages of renting office space
- There will be restrictions on what you can do with the office space and changes will require the landlord’s consent. You may need to reinstate the office to its original condition and layout when the lease ends.
- Competition is tough, especially for prime locations. Expect rents to increase unless you sign a long-term contract, and you may face having to find new offices if rental increases are too high.
- You’ll be committed for the long term, and you’ll need to keep paying rent even if business is slow or you wind up your company, leaving you liable for additional costs.
Should I buy additional office space?
City centre offices are generally rental only, but you may be able to buy premises in more rural or suburban locations. Buying a building with land and planning permission to extend allows you to build additional office space as your business grows.
Advantages of buying office space
- Any office space you buy will most likely increase in value over time, so buying can be a worthwhile investment. It will be listed as an asset on your balance sheet, so can be used as security to raise capital.
- If you use a mortgage to buy office space, interest payments are an expense against earnings so you can offset this for lower Corporation Tax. And, if you no longer need the additional space, you can lease it yourself to create an additional revenue stream.
- Buying allows you to design the office space exactly as you need it.
What are the disadvantages of buying office space?
- Buying isn’t cheap, and requires a significant investment
- Selling your office space is a slow and complicated process, which may hinder your business should you need to move to larger or smaller offices, or a better location.