Office Space: Renting Vs. Buying?

[Goldburger]

Hi All,
So a few years ago, my friends and I started up an online business, and, for the most part, it has been moderately successful. Although right now, it is just the three of us working from out of my home; we have begun the process of taking on more employees and are now seeking to expand our operation. In the next few months, we should have around 8-10 employees working for us, and since we obviously will not be able to accommodate them in my home, we also have begun to search for new office space. So my question to you guys: Would we be better off Renting or Buying office space? We are located in the Greater Philadelphia area, and after a little searching, I came across this video (thought it was kind of cute) for American Executive Centers (http://www.youtube.com/watch?v=VQnqe3yHqHE)....has anyone ever heard of them/know if they would be a good fit for my business? Thanks for the help everybody.

[MyITGuy]

I would advise on purchasing if your funds/credit allows for it, followed by renting. While the executive centers are nice, they would be cost prohibitive for any business with more then 4 employees.

For comparison purposes based on property in my area:
I can purchase an office suite which consists of 2,500 square feet for $350K (Moderate cost as there are cheaper, and there are more expensive). With excellent credit and 10% down would represent a $2,055 monthly payment plus taxes and insurance.
To rent this same amount of office space, I would be looking at monthly costs of $2083.33 (At $10/sqft) to $7,291.67 (At $35/sqft), plus costs for CAM and your own liability insurance. Additionally, this cost is subject to being increased over time (I.E. 3% every year)
To utilize an Executive Center, you would be looking at approximately $400 per seat. So 3 seats will cost you $1200/mo right now, but when you grow to 8-10 employees your looking at $3,200 to $4,000/mo

Good luck with your search!

[SellRex]

Woe! MyITGuy must be in some crazy real estate market to be estimating $10-35/sq.ft FSG. I see office suites daily all over the place: CA, TX, FL, MD for ~$2-4/sq.ft. FSG.

I really don't think an executive center is what you are looking for. Those are shared spaces. It sounds like you need a lease on a small office in a multi-tenant office building. Not only are executive suites not very functional for actually running a business, they look pretty bad to customers and vendors from a "business presence" perspective.

[MyITGuy]

Woe! MyITGuy must be in some crazy real estate market to be estimating $10-35/sq.ft FSG. I see office suites daily all over the place: CA, TX, FL, MD for ~$2-4/sq.ft. FSG.

Nope... that's the going rate anywhere I look from here (Melbourne, FL) to Orlando to Tampa...and $10/sqft is hard to come by for a decent building. Feel free to share some links if you like for comparison purposes (I.E. loopnet.com).

Just to clarify, when I state $10-$35/sqft, this is the annual term that most companies will utilize when providing prices. Are your numbers a monthly cost? If so, $2-$4/sqft/mo would represent $24-$40/sqft using the same method I used above....

[tmerrill]

If you have an IT business, can you have virtual employees? Or telecommuting? That would save you a lot of money while are growing your business.

[OBGregg]

You're not in the real estate business - so why tie-up your cash in real estate? This is especially true in today's market - where property is not the safe investment it used to be.

My advice - lease space (and I agree with others on avoiding the "Executive Centers").

Leased space can grow or shrink as you require it to.

[SellRex]

Yes, of course. My bad. For ocean-view office space in SoCal, you are exactly right ... something on the order $24-$40/sq.ft./year. My apologies for that mistake.

[MyITGuy]

Yes, of course. My bad. For ocean-view office space in SoCal, you are exactly right ... something on the order $24-$40/sq.ft./year. My apologies for that mistake.

Love the sarcasm :rolleyes:, but just for you:
Ocean view space in Venice, CA runs $68.18/sqft/year + CAM. This equates to almost 15K/mo for 2640sqft
LoopNet - The Blu House, Retail (Other), 523 Ocean Front Walk, Venice, CA (http://www.loopnet.com/xNet/MainSite/Listing/Profile/Profile.aspx?LID=17655086&SRID=2745008989&StepID=101)

Meanwhile, searching the same site for Philadelphia, PA (The ops location) shows the following location with 3350sqft available at $2500/mo (Or just under 9/sqft/year + CAM). But since it's under construction (I.E. A shell), your likely to incur additional build-out costs to fit your needs.
LoopNet - Bakers Centre, Office Building, 2801 W. Hunting Park Avenue, Philadelphia, PA (http://www.loopnet.com/xNet/MainSite/Listing/Profile/Profile.aspx?LID=17420985&SRID=2745004518&StepID=101)

The only time you will likely see 2-4/sqft/year is when your leasing a significant amount of office/retail space (I.E. 50,000sqft), which wont be the case with 8-10 employees in an office setting...or when your in an industrial/manufacturing area which wouldn't be an ideal location for office space.

[BNB]

It depends where you are, I pay pennies for a large office space. I would NEVER purchase office space, huge mistake. We have grown and moved 3 times in 2 years.

Businesses always grow or shrink, one or the other. If you expand, you'll need more space, if you shrink, you won't be able to downsize your space and be stuck with big mortgage payments. Renting can be cheaper than buying if you look around for a good deal. You wouldn't come even close to buying my office/warehouse for what I rent it for, you would pay at least twice as much.

[BNB]

Nope... that's the going rate anywhere I look from here (Melbourne, FL) to Orlando to Tampa...and $10/sqft is hard to come by for a decent building. [/edit]

$10/square foot per month, I pay less than half that in west Fort Lauderdale. Again, just look for deals, they are out there.

What we did was get a large air conditioned bay that had multi-level office space in it. So the square footage just covers the empty bay, not accounting for nearly 65% more space on the second level which we use for my office, our employee lounge and customer service area.

Be creative! If you want executive office spaces, you will pay much more.

Out of curiosity, I just looked on Melbourne Craigslist:

STOREFRONT / OFFICE on US HWY 1 (http://spacecoast.craigslist.org/off/3162437854.html) ($8/square foot, retail storefront)

OFFICE / WAREHOUSE (http://spacecoast.craigslist.org/off/3162434835.html) ($5/square foot office/warehouse)

Melbourne Rental (http://spacecoast.craigslist.org/off/3140709182.html) ($9.25/square foot)

These sure look like decent buildings to me. In fact, nearly everything I see in Melbourne is under $10/square foot.

[MyITGuy]

Out of curiosity, I just looked on Melbourne Craigslist:

STOREFRONT / OFFICE on US HWY 1 (http://spacecoast.craigslist.org/off/3162437854.html) ($8/square foot, retail storefront)

OFFICE / WAREHOUSE (http://spacecoast.craigslist.org/off/3162434835.html) ($5/square foot office/warehouse)

Melbourne Rental (http://spacecoast.craigslist.org/off/3140709182.html) ($9.25/square foot)

These sure look like decent buildings to me. In fact, nearly everything I see in Melbourne is under $10/square foot.

Links #1 & #3 are not decent in and are not in desirable areas...at least in my opinion.

Link #2 is new construction, but I'm betting that is in the industrial zone which is right by the county landfill...again not a desirable area.