Buying vs Leasing a Retail Property

Buying vs Leasing

The question of whether to buy or lease a property for your cafe largely depends on your business plan, financial circumstances and mindset.

There are a lot of advantages to owning your own property but in many cases, it may be more practical and strategic to enter into a well structured lease.

Advantages of Buying

  • Overheads: Potentially lower monthly operating costs from bank loan repayments compared to rental expenses
  • Rental Increase: No unexpected increases in rental rates when it comes to renewing the lease
  • Lease Renewal: No unexpected need to move out if the landlord chooses not to renew the lease
  • Sunk Costs: Lower risk of wasted renovation costs as┬áimprovements to the premises will contribute towards an enhancement of the property’s value

Advantages of Leasing

  • Required Capital: Lower initial capital investment for the property to provide more funds for the business
  • Maintenance: Lower cost of building maintenance where the landlord normally has to pay for these repairs
  • Flexible: Flexibility to move and change locations more easily if there are unforeseen issues with the first property

For first time operators, it would probably be wise to lease a property first and focus the company’s limited resources on building the business, which is in operating a cafe and not real estate investment.

For experienced cafe owners who would like to expand their business after starting in a small way, buying may be worth considering as it does offer greater benefits in the medium to long run.

The Rental, Location and Size of a Cafe

The Rental

Rental of the business premises is normally one of the most significant running costs of operating a cafe and it is wise to choose carefully when starting up.

The monthly rental cost will depend on the location and size of the actual property.

From the business plan, it should be clear whether the cafe requires a large space or if a small shop lot is sufficient. At the same time, the concept should also help to determine the ideal location for the business.

For example, city-based cafes are often very compact and located in central areas with lots of natural foot traffic and correspondingly high rental rates.┬áIn contrast, some cafe’s are destinations at the edge of town where patrons can spend a leisurely time to sip coffee or have a relaxed meal.

Here are some useful points to consider when deciding on the rental location for your cafe:

  1. Concept – confirm your concept, size and location requirements
  2. In the City – choose to be in the city for more potential business but be prepared to pay higher rental costs
  3. Outskirts of Town – get a bigger space by opting for more affordable locations outside of the city center
  4. Advertising – create better awareness by being located in a prominent position in the high street
  5. Marketing – save on rental and spend more on marketing and promotions by opening outside of town

Getting the right location is a critical decision when opening a cafe that could make or break the business from the outset.

Take your time and view as many properties as possible. Try not to rush when making this decision, especially if none of the shops you’ve viewed are suitable.

Remember, you’re going to be spending a lot of time there in the future, so don’t make a rash move just because you’re impatient to start the cafe.