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Leasing vs Purchasing Office Space in the Philadelphia Region

Leasing vs Purchasing Office Space in the Philadelphia Region

Your business has to operate out of somewhere, and when it’s time to look for dedicated commercial space for your company, you’ll have a lot of decisions to make. And one of these decisions is whether to lease or purchase your office space.

Both options come with their own set of advantages and disadvantages, so you’d be well advised to do your due diligence and conduct a little research before deciding which option works best for your company.

So, the question remains: is it better to lease or purchase office space in Philadelphia?

Understanding the Pros and Cons of Leasing Commercial Office Space

Commercial real estate investors might assume that purchasing office space is the better way to go, but leasing office space comes with its own set of pros and cons, including the following.

Pros of Leasing Office Space

No down payment required.

As with any other types of real estate purchases, a down payment is required. However, a lease doesn’t require such a large capital investment up front. Rather, a security deposit will be required, which is typically substantially less than a conventional 20 – 25% down payment, maybe 10% with SBA loans. In Philadelphia, you frequently see landlords requesting a security deposit equal to about one or two months’ rent.  Or, it could be more and varies with credit worthiness of tenant and landlord’s investment in tenant improvements for tenant.

That means you’d have a lot more capital for your business, that would otherwise have been tied up in a down payment.

No maintenance or repair obligations.

Every building will require its own fair share of maintenance and repairs over time. It’s inevitable. But where these responsibilities lie depends on whether you’re leasing and your type of lease, or paying a mortgage.

If you’re the rightful owner, the obligation to maintain and repair the structure lies 100% on your shoulders. That means you’ll not only have to cover the financial cost of these repairs and maintenance costs, but you’ll also have to manage such efforts.

If you’re leasing, however, these obligations often lie with the landlord, not you. This can free up a lot of effort that you can otherwise dedicate to your business.  

Flexibility to expand/or contract.

If your company reaches a point where it’s time for expansion, a lease can provide you with the flexibility to grow, as opposed to being restricted by the size building that you’ve purchased. Among all the factors to consider when it comes to deciding between leasing and purchasing office space in Philadelphia, one of the more important ones is flexibility to expand.

A growing business will find that a lease can provide them with a much better way to accommodate expansion as opposed to buying. With the right commercial real estate agent in your corner when you negotiate the lease terms you may be able to obtain options to renew, an early termination clause or an option in the lease that can provide you with the “right of first refusal” to acquire space that might become available in the office building.

Purchasing office space, on the other hand, can limit your size flexibility.

Cons of Leasing Office Space

While leasing comes with a certain set of advantages, there are some drawbacks to consider.

Potential increase in rent.

Most office leases have annual rent increases. And on a lease renewal it’s always possible that your landlord will increase your lease price. If the cost is out of your budget, you could find yourself uprooting your business to find a place with a lease price that fits in better with your budget and profit margin.

Improvements made will stay with the building.

If you decide to make any changes or upgrades to the building to better accommodate your business operations, you can’t take them with you when you go. The only person to benefit from the time, effort, and money spent on making such improvements when you leave may benefit your landlord.

Understanding the Pros and Cons of Purchasing Commercial Office Space

Now that you’re familiar with why leasing office space in Philadelphia has its pros and cons, consider those of purchasing office space.

Pros of Purchasing Office Space

Build equity.

One of the biggest perks of buying property is the opportunity to build equity – and subsequently wealth – over time. Every mortgage payment made goes towards building equity. And over time , if you maintain, and keep your property up to date , you may see the value appreciation as well.

Payments less likely to fluctuate.

Unlike rent, which can change every time it’s time to renew your lease, you can be more comfortable knowing that your mortgage payments will stay the same – assuming you’ve chosen a fixed-rate mortgage.

Opportunity to make extra income.

If you own your property, and it has extra space for the growth of your company you have the freedom to lease out a portion of it to generate extra income. Versus sub-leasing your excess leased office space which is more complicated. In the lease the Landlord may control the rate for the sublease and who you can lease to.  And, who would spend the money on Tenant Improvements? In a sub lease most likely you and you can not leverage the Asset.

Make improvements to add value.

If you choose to improve your property, you can maintain and sometimes add value to it as you build equity.

Take advantage of tax benefits.

When it comes time to file your taxes, you’ll have the opportunity to deduct certain things such as property taxes, improvements, mortgage interest, and so forth.

Cons of Purchasing Office Space

Upfront cost is higher.

Buying comes with much more significant upfront capital invested costs compared to leasing. And typically you should purchase a building that is larger than your business require to accommodate future growth. This is precisely why many businesses choose to lease. In addition to the actual mortgage payments and down payment, there are several other closing costs and Due Diligence costs associated with buying property that you wouldn’t be faced with had you chosen to lease instead.

You’re responsible for maintenance and repairs.

This can just be added to the list of costs associated with owning property. When you’re the owner, the onus to maintain and repair the property is 100% on you.

At PG Commercial Real Estate, we strive to ensure that our clients know as much as they can about both sides of the coin in order to ensure that they make a sound decision that’s best for their business. Whether you decide to lease, or purchase your office space in Philadelphia, we’ll be with you every step of the way in order to ensure you enter into a solid agreement.

 

 

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Neighbors: An Important Factor When Selecting Your Business Location

Neighbors: An Important Factor When Selecting Your Business Location

Neighbors: An Important Factor When Selecting Your Business Location

When choosing a location for your business you need to keep a lot of things in mind.

In addition to the location and quality of the building and Lease, or Sale, terms you may want to consider are who your neighbors are. Just like when buying a house or renting an apartment you want to find a place that is in a good neighborhood that you feel safe in, and that has people who are like minded to you.

To take it a step further when you are looking for an office space you should think about what types of businesses will be around you.  For instance, if you are an orthodontist, is there a dentist in the same office complex or down the street that can send you referrals?  If you are a specialty cake shop is there a coffee house nearby that you can partner with to display your cakes?  Or if you are a high-end clothing retailer is there a dry cleaner in the area that you can refer people to make sure they take care of the clothes they purchase in the proper way?  These types of neighborly relations may be more important to retail and healthcare businesses.  But even general office users may care about neighbors when it comes to employees.

Not only do you want to identify these potential partnerships or referral sources but you want to “be a good neighbor” to them and build a relationship with them so that they not only know who you are, but they like and trust you enough to refer their clients, friends, and family to you. Also there can be a downside to having neighbors that are in similar, or competing businesses. You may have concerns about competition for employees, or concerns about trade secrets.

If you find an office that is in a strip mall, a mixed-use building, or one of the new and popular shared office space locations make sure you are being a good neighbor at all times.  What does that mean?  Well it’s pretty simple, it’s the golden rule you probably learned in kindergarten.  Treat others the way you wish to be treated. Don’t steal their parking space, don’t be overly loud as a neighbor, don’t leave trash or other smelly items in your workspace/office that could bother others.  Be friendly, cordial, and respectful and build a genuine relationship and friendship.

So not only do you want to select a location that has good neighbors but you want to be a good neighbor to them and focus on building relationship because you never know where your next referrals may come from.

 

 

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Company Culture: Center City v. the Burbs

Company Culture: Center City v. the Burbs

If your company is looking to make a move one of the biggest things to consider is location, location, location.  Where your company sits is huge in not only determining the type of people and clients you attract, but it also helps define your brand and how the world sees you.  There are many factors to consider.  Do you need to be near the port, near the turnpike, near potential employees, or  your customers, near your home, etc.

If you are a fancy tech start up that wants cutting edge programmers, you want to have stylish offices in the heart of Center City. The Work where they Live Strategy.  And, where your employees can grab a coffee at Starbucks on their break, get sushi for lunch, and go out for a beer with their friends after work, all within a mile or so of your location.  Central Business District of Center City Philadelphia is a hub for public transportation systems for those employees living outside of the CBD. All of these factors go into creating the type of company culture you want, a young professional, intellectually curious group of people that do their best work in an open floor concept office where they have access to their colleagues and maybe even snacks!

Now if you are another type of business, maybe one that requires mostly office space but a small storage, or assembly area with double doors direct to outside, or your customers, or you, and your employees live mainly in the suburbs, Center City would probably not make sense.  Your employees are in a different stage of life, they want to be home for dinner with their kids, or able to drop them off at dance and soccer practice after school.  Sitting in an hour and a half of traffic on 76 doesn’t make any sense for someone who wants that type of life.  The type of building and even the furnishing aren’t as important as a central location near good schools, neighborhoods, and doctor’s offices.

2 sides of a coin, both great options depending on what your company and employee’s needs are.

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Things to Consider When Getting Ready to do a Mass Hire

Things to Consider When Getting Ready to do a Mass Hire

Is your company growing? Will you soon need to bring on a number of new people?  That’s fantastic! But are you prepared for everything that comes with doing a big round of hiring? Below are some practical tips and advice of what to consider when getting ready to expand your company talent.

First and foremost if you are getting ready to do a mass hire it is likely that you will need to look at larger office locations to accommodate your growth. There are many factors that will need to be considered when making such a decision and most of them will depend on the amount of people you plan to bring onboard.

Parking

If your new location is not in a metropolitan area where most people commute via public transit you will need to consider parking availability for your new hires.  Availability of on-site parking or street parking are features to consider.

Open Floor Plan vs Private offices

What kind of office plan works best for your type of business? What office equipment will you relocate?  What equipment and furnishings will you buy new or lease?

Lactation Room

Did you know that as of 2010 the Affordable Care Act requires businesses to “provide a place, other than a bathroom, that is shielded from view and free from intrusion… which may be used by an employee to express breast milk.”?  Since breastmilk is food a bathroom is not sanitary and should never be used for pumping breastmilk.

Snack Rooms/Eating Areas

Do your employees tend to eat out for lunch or are they health conscious and bring their lunch? If so you’ll need an adequate kitchen or snack area, along with fridges for storing lunches.

All of these are important factors to consider when getting ready to hire a large number of people that will require new office space.  However the answers that will best fit your company will be directly influenced by your unique needs.  The process will most likely take months to select the best possible building and floor plan for the future of your company but once your staff is settled and thriving all the planning will be worth it.

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Transform Your New Office Work for Your Business

Transform Your New Office Work for Your Business

Work to Live. Live to Work. What is your business philosophy?  No matter your motto why not create a space that will make work seem a little less like work and more a place you can excel at your professional.

Today’s commercial real estate trends are no longer looking for only traditional office space, which is readily available, but rather to find the unique office spaces, buildings and locations that will make a statement with a redesign. Oh, and for those that continue to lease and purchase traditional office space they too are reworking the work space into something more engaging.

What do we mean exactly? Since pictures speak 1,000 words let us show what some companies are doing to make their office space more appealing to employees. Not only do they look neat but many companies will contract with high end corporate interior designers to focus on elements of productivity, teamwork and positive energy in the designs.

For the companies that need warehouse space. Modular offices are certainly an option, check out the gallery below from PortaFab.

One of my favorite furniture design companies is Corporate Interiors, learn more about them here.

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Are we there yet? 2014 Mid Year Office Market Trends

Commercial Real Estate 2014 Mid Year Office Market Trends

By there I mean where the real estate values are increasing at a point above the measurement of the annual rate of inflation. The Consumer Price Index (CPI-U) has increased 2% for the past 12 months through July 2014. This percentage change year or year is a key indicator for the economy. By analyzing the national data – YES, we are there!  Keeping in mind the real estate trends vary regionally and with the quality of the product. Looking at the global market and the Vacancy Rate – the CRE industry uses this to track trends and an indicator of the balance of supply and demand for office space. Here are a few of the findings in the national vs local office markets for Vacancy Rates and rent trends.

Based on the Costar’s mid year review the national vacancy rates for leased and owner occupied buildings up to the first half of 2014 is at 11.8% as compared to 2013 which was 12.2% vacancy rates. This is a reduction of almost a half a percent in available office space. The national rent increase year to date in 2014 increased 3.7% as compared to 2013 with only a 1.9%.

 

cre 2014 trends (more…)

Posted in: Commercial Real Estate, Corporate Office Space, Philadelphia

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Finding Office Space in Philadelphia

Finding Office Space in Philadelphia

Whether you are from the Philadelphia region, or not, when it comes to searching for commercial real estate office space it is not as easy as hopping on the web to do a search.  Leasing or purchasing space needs to be seen as an investment with the opportunity for your business to grow, or make changes, without having to sell/move again for maybe a 3,5, 7+ year period.  Some of the obvious options for leasing commercial offices space are located in Center City Philadelphia, which is well known for its skyscrapers with amazing views. But what about finding the right solution for your actual needs long term. How do you know you are seeing all the opportunities that can meet your criteria? How do you know which Landlord’s are a little more motivated, maybe due to a higher vacancy, or another project they want to start? Sometimes the property is off the beaten path, or in a location you would not have thought of on your own, or there is a sublease space with little market exposure. That is where your commercial real estate agent comes to the rescue!  With access to information on the agents for the buildings and data on what is available, but an understanding of regulations, and extras you may not consider. (more…)

Posted in: Commercial Real Estate, Corporate Office Space, Philadelphia

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2013 Commercial Real Estate Year End Report by PGCRE

What is happening with the Office Market after the 2008 – 2009 drop in Value and Demand, and being out of favor with investors? 

Whether your business leases offices, or directly owns the building, you may find value in news on the status of trends in the Commercial real estate market in the Philadelphia region, and nationally.  There is so much to say and so many statistics to reference. But, here is a quick short synopsis to give you a feel for the direction of market trends for planning purposes.

Click here to download my free 2013 report for our region!

Rental Rates

Posted in: Commercial Real Estate, Corporate Office Space, Philadelphia

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Hiring a Commercial Real Estate Agent

With the advent of the internet and the wealth of information available online…. do I really need a commercial real estate agent to assist with my commercial real estate transaction?

Yes, and here is why.

As you can imagine finding a business location and/or a lease renewal for a location is a process. It is not just identifying a building and zip code it is more, and for those purchasing, it is a long term investment.

It is most efficient if you select a commercial real estate broker who can help you do the following:

  • See the Big Picture
  • Understand the Value of your Purchase
  • Negotiate the Best Terms Possible
  • Devote the Manpower and Time to Achieve all your Goals

Most commercial real estate agents work on a contingent basis, meaning they will get paid upon the purchase, or signing of the lease, which is usually paid by the Seller, or  Building owner. This type of arrangement is often a win-win situation for the company as they are not obligated to make a purchase. With that being said a company may also enter a retained agreement  with a retainer for services for a larger project that will take several years. Also most agents are working for the Buildings Owner. If you are a business looking for a location, or faced with a lease renewal, select an agent to represent your business.

If you decide to hire a commercial real estate agent we suggest you interview a few professionals and choose someone you like, trust and who has experience!

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Tenant Representation or Personal Shopper?

Tenant Representation is like being a personal shopper for a very large and complicated purchase; an industry term is Transaction Manager for the Tenant.  The women of C.R.E.W., Commercial Real Estate Women, might agree this is one reason women make great commercial real estate brokers. Women know what they want, how to find it and are excellent negotiators.

tenant representationPeggy Gallagher, owner of PG Commercial Real Estate and a woman real estate professional weighs in on the benefits of Tenant Representation and the value it has to a Business.

What makes an office space purchase, or lease, a complicated purchase? For starters the multiple layers from identifying the properties, to financing, to space layout, to taxes and orchestrating the move itself.

  • Knowledge of the language in contracts and the business terms associated with it
  • Distinguishing factors and expectations of different property classes: A, B etc
  • Setting expectations and help to compare industry standard in a purchase or lease, which can assist with the negotiation process
  • Access to information on available property and market information
  • Value & Cost Comparisons Breakdown of actual cost per square foot to compare Buildings
  • Assist you in building your Real Estate Team with key players
  • Compare and contrast similar properties

If you are approaching a lease renewal, or looking to move office space, and in need of a personal  real estate shopper, contact Peggy for how to get started!

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