For many New England business owners, the question isn't whether to buy commercial property someday. It's whether now is the right time. The answer depends on your business stage, financial position, growth plans, and how long you intend to stay in one location.
Here's how to evaluate whether buying makes sense for your situation.
The Quick Answer
Buying commercial property typically makes sense when your business has operated profitably for at least two to three years, you plan to stay in the same location for seven years or more, you have stable or predictable space requirements, and you can handle a down payment without straining your working capital. If you're still in rapid growth mode, uncertain about your space needs, or need maximum flexibility, leasing may be the better choice for now.
Signs That Buying Makes Sense
Several factors indicate that purchasing commercial real estate could benefit your business:
You've been leasing the same space for years. If you've renewed your lease multiple times and don't anticipate relocating, you've essentially been paying someone else's mortgage. Every rent payment builds your landlord's equity instead of your own.
Your rent keeps increasing. Commercial lease renewals in competitive New England markets often come with 3% to 5% annual escalations. Over a 10-year period, those increases compound significantly. A fixed-rate mortgage payment, by contrast, stays predictable for the life of the loan.
You need to customize your space. Landlords often restrict modifications, or require you to return the space to its original condition when you leave. Ownership gives you complete control to configure the space for your operations without negotiating every change.
Your business has stabilized. You've moved past the startup phase, your revenue is consistent, and you have a clear picture of your space requirements for the next decade or longer.
You want to build wealth outside your operating business. Commercial real estate can appreciate over time, giving you an asset that holds value independent of your business operations. This diversification can provide a safety net if business conditions change.
Signs That Leasing Still Makes Sense
Buying isn't always the right move. Consider continuing to lease if:
Your business is still young. Most lenders want to see at least two years of operating history before financing a commercial property. Even if you can qualify, committing to a property before your business model is proven adds risk.
You're growing rapidly. If you've outgrown your space twice in five years, buying could lock you into a location that won't fit your needs in another three years. Leasing provides flexibility to scale up (or down) as circumstances change.
You're uncertain about your industry or market. If your sector is undergoing significant disruption, or if you're considering a major pivot, maintaining flexibility through leasing may be worth the premium.
Your capital is better deployed elsewhere. If reinvesting in your operations generates higher returns than owning real estate, leasing keeps that capital available for growth. This is particularly relevant for businesses with high-margin opportunities that require investment.
You need a prime location you can't afford to buy. Some locations command prices that make ownership impractical. If being in a specific high-traffic area is essential to your revenue, leasing may be the only realistic option.
The Financial Comparison
When evaluating whether to buy or lease, compare the true costs of each option over your expected time horizon:
Leasing costs include:
- Monthly base rent (often increasing annually)
- Common area maintenance (CAM) charges
- Property taxes and insurance (in triple-net leases)
- Any required buildout costs
- The risk of rent increases at renewal
- Potential relocation costs if the landlord doesn't renew
Ownership costs include:
- Down payment (typically 10% with SBA 504 financing, or 20% to 30% with conventional loans)
- Monthly mortgage payments (principal and interest)
- Property taxes
- Insurance
- Maintenance and repairs
- Potential capital improvements
Ownership benefits that offset costs:
- Equity accumulation as you pay down the mortgage
- Potential property appreciation
- Tax deductions for mortgage interest and depreciation
- Fixed principal and interest payments (with fixed-rate financing)
- Rental income if you lease excess space to other tenants
- An asset you can sell or leverage for future financing
The break-even point varies by market, but many analyses show that ownership becomes financially advantageous when you plan to occupy the space for seven years or longer. The longer you stay, the more ownership tends to outperform leasing.
The New England Market Context
New England's commercial real estate market has characteristics that affect the buy-versus-lease decision:
Limited inventory in desirable areas. Finding the right property can take time, especially in Greater Boston, southern New Hampshire, and Connecticut's Fairfield County. If you find a property that fits your needs, waiting may mean losing the opportunity.
Strong economic fundamentals. Massachusetts, in particular, benefits from its concentration of healthcare, biotech, education, and technology sectors. These industries provide stability that supports commercial property values over time.
Varied market conditions by submarket. Industrial vacancy remains tight in most of New England, while office markets vary significantly by location and building class. Understanding your specific submarket helps you assess whether buying conditions are favorable.
Property taxes vary significantly. Tax rates differ substantially across New England states and municipalities. A property that looks affordable based on purchase price may carry higher ongoing costs depending on location.
How SBA 504 Financing Changes the Equation
One factor that makes buying more accessible for New England small businesses is the SBA 504 loan program. This financing structure reduces the barriers that often keep business owners leasing:
Lower down payment. Instead of 20% to 30% down required by most conventional commercial lenders, SBA 504 loans require just 10% down for most projects. This preserves working capital for operations.
Fixed rates for up to 25 years. The SBA portion of the financing locks in a fixed rate for the life of the loan, protecting you from interest rate increases.
No balloon payments. Many conventional commercial mortgages require a large lump-sum payment after 5 to 10 years, forcing you to refinance at whatever rates are available. SBA 504 loans amortize fully over the term.
Below-market interest rates. The SBA-backed portion typically carries rates lower than conventional commercial financing.
These features make the financial comparison between buying and leasing more favorable toward ownership for businesses that qualify. A property that seemed out of reach with conventional financing may become affordable with SBA 504 terms.
Questions to Ask Before You Buy
Before committing to a purchase, work through these questions:
How long do you realistically plan to occupy this property? If the answer is less than five years, leasing probably makes more sense. Seven to ten years or longer favors buying.
Can your business handle the down payment without compromising operations? Even at 10% down, a $1 million property requires $100,000. Make sure this won't strain your working capital or limit your ability to pursue growth opportunities.
What are your space requirements likely to be in 5, 10, and 15 years? If you're confident you'll need similar space, buying provides stability. If you might need significantly more (or less) space, consider how you'd handle that scenario as an owner.
Is the property suitable for your long-term needs? Consider factors like layout, ceiling height, loading access, parking, zoning, and room for expansion. Buying the wrong property is worse than continuing to lease.
What's your backup plan if business conditions change? Could you lease out part of the space to another tenant? Could you sell the property without taking a significant loss? Having options provides peace of mind.
Have you compared all-in costs of owning versus leasing? Don't just compare mortgage payments to rent. Include taxes, insurance, maintenance, and capital improvements on the ownership side.
The Occupancy Requirement Factor
One consideration specific to SBA 504 financing: you must occupy at least 51% of an existing building (or 60% for new construction). This means the property needs to be appropriately sized for your operations. If you're buying a larger building to grow into, make sure you can meet the occupancy threshold initially while planning for expansion.
The occupancy requirement also creates an opportunity. You can lease up to 49% of an existing building (or 40% of new construction initially, 20% permanently) to other tenants. This rental income can help offset your ownership costs and improve the financial case for buying.
Getting Professional Guidance
The buy-versus-lease decision involves financial analysis, market knowledge, and an understanding of your business trajectory. Consider consulting:
A commercial real estate broker who knows your local market and can help you identify suitable properties and negotiate terms.
Your accountant or financial advisor who can model the tax implications and cash flow impact of each option.
A Certified Development Company (CDC) if you're considering SBA 504 financing. CDCs specialize in helping businesses access this program and can help you understand whether you qualify.
For New England businesses exploring ownership, New England Certified Development Corporation has been helping companies access SBA 504 financing since 1981. They can evaluate your situation, explain the financing options, and help you determine whether buying makes sense for your business. You can reach them at (781) 928-1100 or visit cdcnewengland.com to schedule a consultation.
Bottom Line
Buying commercial property in New England makes sense when your business has reached a stable, established phase, you expect to stay in one location for the long term, and you can manage the down payment without compromising your operations. The financial advantages of ownership typically outweigh leasing costs over time, especially with SBA 504 financing that reduces the down payment to 10% and provides fixed rates for up to 25 years.
If you're still in growth mode, uncertain about your space needs, or need maximum flexibility, continuing to lease keeps your options open. There's no universal right answer, only the right answer for your business at this stage of its development.
This article is for informational purposes only and does not constitute financial or legal advice. Consult with qualified professionals before making commercial real estate decisions.
