Posted in Blog  
  on May 21, 2013

Buying vs. Leasing a Commercial Property

Buying vs. Leasing a Commercial Property

Commercial Leasing vs. Purchasing


If you are looking at developing equity for your business, first consider your options of leasing versus purchasing commercial property. Performing market research in your local area will offer additional insight. Here are some key points to think about when making a decision.

Market Trends


Here is a look at some recent marketing statistics for commercial property. Market trends are primarily influenced by access to capital and cash flow uncertainty with businesses.

Lease
The average asking price per square foot is $11, serving a 3% drop over the last two years. The standard timeframe for leased commercial property to sit on the market is 221 days which is down 25 days from two years ago.

Sale
The average asking price per square foot is $83, serving a 15% drop over the last two years. The standard timeframe for leased commercial property to sit on the market is 216 days which is down 16 days from two years ago.

Market Impact


The availability of commercial real estate loans is still at its lowest levels since 2007. Leasing property has not dropped as much as sale prices and do not comp for the potential costs involved with fulfilling leasing requirements such as improving the property, which is increasingly common. Asking prices for commercial sale property have dropped dramatically since 2008 and continued to fall since the decline has slowed.

Where to Get the Most Value


Here is a listing of areas that fall under high cost and low cost markets along with their current rates for leasing and selling commercial properties and duration typically spent on the market.

Lease High Market
New York - $18.17 at 6.5 mths
San Francisco - $16.96 at 6 mths
San Jose - $16.56 at 6.7 mths
Los Angeles - $16.00 at 5.9 mths
Washington DC - $18.82 at 7.4 mths

Lease Low Market
Minneapolis - $5.57 at 8.1 mths
Cincinnati - $8.45 at 9.8 mths
Jacksonville - $8.36 at 9.3 mths
Memphis - $7.58 at 10.4 mths
Columbus - $7.79 at 12 mths

Sale High Market
San Diego - $175.85 at 6.7 mths
Washington DC - $168.01 at 7.5 mths
San Francisco - $193.83 at 5.5 mths
San Jose - $168.59 at 6.7 mths
Los Angeles - $179.80 at 6 mths

Sale Low Market
Cleveland - $49.51 at 8.7 mths
Pittsburgh - $60.12 at 11.4 mths
Cincinnati - $55.64 at 9.1 mths
Detroit - $50.05 at 6.7 mths
Memphis - $51.61 at 6.7 mths

Market Health


The current health of the market shows leasing and selling prices for property have declined from last year, however the rate of change is slowing down for both sectors. Compared to last year, leasing prices almost flattened but have slightly increased in recent months. If this continues, a positive year to year growth should begin for the first time in nearly two years.

While sale prices are still falling at a slower rate, lease prices are heading towards a positive growth which will help to boost pricing on sale properties. It is recommended that if you intend on leasing, this could be the time to head in for a long term lease. This choice may also offer you additional discounts for early renewals and multi-year lease extensions.

For investors looking for property for sale, keep in mind the locations potential to rebound and upside opportunities. Sale prices can still continue to decline, but the increase in leasing prices may show you some hastened return.

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