Purchasing commercial property probably doesn’t make sense for most SMBs, entrepreneurs and startups.
Reasons a business might purchase property:
- The business is stable and can afford it
- They want a big asset that will appreciate
- The business’s customer base is and will continue to be located in the geographic vicinity of the property for the foreseeable future
- The business’s space needs are static
The converse of those reasons are why a business might not want to purchase property, plus the business may:
- Be new or one that experiences fluctuating revenue or an uncertain future
- Potentially need to relocate for employee or customer access
- Require more or less space in the foreseeable future
The COVID-19 pandemic has been an illustrative example of how purchasing property doesn’t always work out for business owners.
Many businesses had to close their doors either temporarily or permanently during the pandemic. More than a few businesses with the capability to allow employees to work from home did so. A lot of those businesses discovered they no longer needed to pay high commercial rental costs with a remote workforce. At a time when revenue slumped, having one less bill to pay was a benefit to struggling employers.
There’s also the matter of upkeep. Whether from a commercial or residential standpoint, owners have a lot of extra costs a renter doesn’t have to worry about. In the Phoenix metro area cooling is a big priority for commercial properties, and the HVAC systems and energy costs of powering them are not a minor expense. Owners also have added costs for things like roofing, plumbing and all types of building upkeep.
Commercial Real Estate Market
Despite the pandemic and growing concerns that the nation’s economy is in the late stages of a seemingly unstoppable growth cycle, a lot of commercial real estate experts seem to be bullish on the Valley’s commercial property market.
A strong commercial real estate market can be a pro or a con depending on how you look at it. The purchase price of commercial property may be higher than it would be during a more prolonged downturn, but a wisely purchased property in a high-demand location will likely be an asset that pays back significant dividends in the future.
The Pros and Cons Businesses Should Weigh When Considering Property Purchases
It’s not unheard of for small businesses to diversify their income by purchasing a multi-tenant property, like a strip mall along a major city street, and generate extra revenue by renting storefronts to other tenants.
Rent payments are great supplemental income if a business has the capital and is willing to invest all the extra money into property management. Rental income can more than offset those additional property management costs, but that’s only a break-even proposition if they can keep tenants in those spaces.
Commercial property owners may also benefit from local and federal tax breaks for things like:
- Interest payments on property loans
- Property depreciation
- Other expenses unrelated to mortgage payments
Businesses that purchase property can also do what they want with that property. Want to knock down walls and drastically change your building’s floor plan? It’s a lot easier to do when you own the property.
On the other side of the coin are things like:
- Finding and qualifying for financing
- Making a large down payment
- Keeping up with loans
- Potentially facing prepayment penalties if your situation changes
- Paying for expensive commercial property liability coverage
- Sacrificing a significant chunk of liquidity
The downsides vary a lot depending on the type and size of the business. Businesses that rent property don’t build the same type of equity as ones that do take the plunge, but they also don’t have to shoulder those often-risky burdens.
The Alternative to High Rent and the Risks of Purchasing Commercial Property in Tempe
Businesses that have found Tempe and Phoenix’s high rental costs less than appealing but aren’t interested in purchasing a property have a third option – coworking spaces like those found at MAC6.
Coworking spaces often turn out to be more affordable than traditional leases because you’re sharing a lot of the costs with other businesses. The amenities employees have access to in a coworking space are often much more robust than those enjoyed by workers in more traditional commercial tenant environments.
MAC6 and similar coworking facilities also take care of a lot of logistical aspects the average commercial tenant must deal with on their own. Coworking spaces are fully furnished with desks and chairs, have easily accessible high-speed internet and boast modern kitchens and break areas equipped with everything from ice makers and coffee to microwaves and fridges.
If you’d like to learn how your employees can work more comfortably and far more affordably in a coworking space in Tempe, we encourage you to call us at (480) 582-2200 and schedule a tour of our Tempe campus.