Buy, Rent, or Renovate?
Entrepreneur by Yvette Tan and Toni Antiporda, 05-19-2014
A dedicated office or store space is important to a business.
"Having a dedicated office increases the company's credibility and
productivity which will later on translate to growth," says Gerold
Fernando, senior manager of KMC MAG Group Inc., a real estate
Aside from making it easy for clients to find you, it offers
management and employees an area where they can focus on the task
at hand, be it selling products or providing services. Successful
business owners will tell you that "location, location, location"
is paramount to a thriving business, but when it comes to setting
up shop, the first question an SME has to take into consideration
is: Can I afford to rent, renovate, or buy?
BUY NOW, BETTER LATER?
On the whole, says Fernando, "It will almost always make sense to
buy. Being a landlord is a business on its own so a portion of the
rent is really profit, which could be yours if you own the
The business owner can decide to lease excess space to third
parties and get a return, agrees David Leechiu, country head for
commercial real estate company Jones Lang LaSalle. "Local companies
may benefit more by owning their real estate-I say this because
many local companies are owned by a family or a group of friends
who also manage the company," he says. "Many times the occupied
real estate can he used to expand the balance sheet to allow it to
leverage more for the company's operational needs."
Herbert Herrero, Avida Land Corp. project and strategic
management group head for South and office projects, also advises,
"If the business sees itself for the long term, 10 to 15 years, at
prices to date, it is more prudent for them to purchase property
outright. They almost pay the same amount of rent and purchase
price if they hold office for 10 to 15 years."
"Don't buy beyond your means. A lot of companies
make that mistake. They set up in a nice area, but they can't
afford the cost implication, the money isn't
IF YOU CAN'T BUY, RETAIN
Not everyone, however, may have the capital to buy real estate
outright. "It might not be a good idea to buy right away, not
unless you have big funds to invest," says Ivy Tablante-Darilag,
head a rc li itect of Structure Architects." 11 s more [practical]
to rent first, and then when the business is more stable, that's
the time you can look for options to buy. If you have an existing
property, the best way to go [would be] to renovate really old
structures, old buildings, old rooms to serve the purpose of your
"There is always a cost implication to moving... if you've been
there for five years and business has been good and there are no
issues to transportation, then the option is renovation," also
notes Melo Porciuncula.head of business operations and capital
markets at KMC MAG Group. "Don't buy beyond your means. A lot of
companies make that mistake. They set up in a nice area, but they
can't afford the cos implication, the money isn't there."
Herrero says that the clincher is whether the company will be
expanding in the future; if so, they can hold off renovating and
choose to rent a new office that can fit their current
requirements. "It is better for them to lease long term as
escalation rates are fixed. Short-term leasing is beneficial when
the company sees itself expanding in the future."
SIZE, AND LOCATION, DO MATTER
Joey Radovan, vice chairman of real estate advisory and services
firm CBRE Philippines, admits that the Makati Central Business
District (CBD) "still charges the highest office rental rates in
Metro Manila," but on a regional scale, "it still offers the lowest
prime rate across Asia at $26 per sq ft per annum, followed by
Bangkok, at $32 per sq ft per annum,and Bangalore, at $33 per sq
ft per annum."
"If it's Makati, the costs are definitely higher because it's
CBD, but it depends on your business and target market,"
Tablante-Darilag says. "There are other places that are also CBD,
like Quezon City or Ortigas, that are more cost-efficient."
Size affects the operating expenses of the company, but Herrero
says that fi nils like Avida are catering to "just right"
specifications so SMEs in particular are not forced to buy bigger
spaces Lhey don't need. "We're offering business owners an area
that is suited for those with seven to 20 employees," he says,
adding that the units are also designed to lower maintenance cost.
"Since office spaces are designed for an individual AC system, the
unit owner is able to manage his costs better."
Porciuncula suggests tapping brokerage firms like KMC MAG Group
to recommend a range of options tailor fit to the functions of the
company. "It can be as simple as a virtual office, wherein your
office address or incorporation address is in one of our
facilities. And then you can get an incubation .space, meaning we
have a facility where you can rent one seat or two seats, and it is
located in Fort Bonifacio. Then of course, the permanent spaces,
the outright leases. These can range anywhere from 90 sq m to as
big as you want," lie itemizes.
DOES IT MAKE FINANCIAL SENSE?
To better decide, once and for all, "it's important for the
shareholders imd the managers to have a vision of the long term
future of the company or business, and from there, priorities or
targets are established and resources are measured against those
benchmarks," says Leechiu.
Fernando suggests asking yourself three questions: Do I have the
resources? Do I see my business in this place in the next five or
10 years? And, is the property I am buying in an area of increasing
capital value will I be able to rent it out if I do have excess