The question of whether to lease or buy commercial property is one that all business owners are faced with at some point. So, how do you decide which option works best for your business?
There are benefits to both leasing and buying a commercial property in Cairns. We talk to a local property expert, who has more than 30 years in the industry, about the pros and cons of each.
A large proportion of Cairns’ businesses currently lease their premises, according to Stacey Quaid, Managing Director of Colliers International (Cairns), who has been in the industry since 1987.
“The decision to lease or buy generally depends on the market cycle at the time, current market conditions and rental rates as opposed to repayment rates,” says Stacey. “Leasing usually allows a business the flexibility of cash flow as well as the opportunity to move from one building to another if a business owner wants to upsize or downsize. If you own your building, you are committed to that building for a period of time.
“The benefits of being a tenant is less capital required for entry point. In buying, you need to come up with the deposit, which again affects the business’ cash flow, which is why many business owners prefer leasing.”
After a lacklustre start to the year in the property market, due to the long, wet season and corresponding with a slow start to the tourism season, Stacey believes the commercial property market will improve substantially in the next six to 12 months.
“You do see fluctuations in the rental market in a city
like Cairns that has its ups and downs, different seasons and different peaks and troughs,” he says. “We thought
this year was going to be stronger, but the distractions from the marketability of Cairns has put a damper on our market for the first half of the year. But we see positive movement starting to happen, particularly in the Cairns CBD.
If you are in a position to buy your own premise, now is a great time.”
Stacey says that lately, more business owners are deciding to buy their commercial premises.
“Historically people prefer to lease until they get established and transition from being a commercial tenant to a commercial owner” he says, “however we are now seeing more movement from people who are tenanting a building to buying it.
“I think there’s a number of reasons for that. One is its tax effectiveness and current affordability, and another is that people have built up significant capital in their Super funds and many use this equity to purchase the property through their self-managed Super funds to rent it to their businesses. That’s been a growing trend in the market.”
The commercial property market has three main sections – office, retail (which also includes restaurants, cafes, pubs and tourism outlets) and industrial. The opportunities for retail owners in Cairns to buy or lease is strong now.
“There are a fair amount of retail spaces currently available, including in the CBD, but we’re seeing some movement now with landlords’ incentives assisting businesses to make the move,” Stacey says.
“Generally, what we’re seeing at the moment is more of a short-term rather than a long-term trend, which is opening up some good opportunities for business owners who are looking to upgrade their space, find a better location or move into a more suitable building.”
Based on the current vacancy rate, Cairns has enough commercial property to meet market demands for the next year or two, but Stacey says that could easily change.
“At the moment we’re spoiled for choice, however I don’t think it would take much for our market to turn around,” he says. “Overall, when you look at the numbers we’re looking at and the amount of total leasing property available it’s relatively small. So, if we had 10 or more new businesses coming to town tomorrow, we could be running into a supply shortage.”