Andrew Moody reviews the advantages and drawbacks of buying your own premises and, depending on which way the market turns, considers whether buying property now could be a timely investment

WITH COMMERCIAL PROPERTY VALUES FALLING by up to 25 per cent over the past two years, there have been few better opportunities for small business owners to buy their own premises.

The market seems unlikely to fall further and, at the end of last year, was showing signs of revival with prices rising in November by 2.4 per cent, according to the key IPD commercial property index.

Paul Bagust, associate director for professional groups and forums at the Royal Institution of Chartered Surveyors, says it could be an opportune time to invest.

“There are a lot of people looking, but the main problem currently is access to finance”: he says. “Those with solid financial backing could be in a good position, although there are always risks with property”

‘Whether to buy your own commercial premises rather than lease is often one of the major decisions a business has to make:

For many people leasing, particularly short term, offers flexibility – but ownership gives more freedom and the opportunity of building up a capital asset.

David Graham, who owns and operates Autotest, a vehicle service and diagnostic centre, previously leased two units at Norwich Airport Industrial Estate, but decided to buy the lease in October 2008.

‘A mortgage can sometimes be cheaper than the rent and can therefore reduce your variable costs: he says. ‘Buying the premises has actually halved my monthly outgoings, and I don’t have the uncertainty of rent reviews.’

Mr Graham cautions against small business owners thinking they are going to make a quick return on their investment.

‘You’re not likely to make as much on a commercial property as you might on a residential one. Nonetheless your business is going to be worth more, and when you retire you have more to sell:

According to the RICS, UK businesses waste a staggering £18 billion a year through their inefficient use of property.

This can be anything from wasting money by not renegotiating costly leases or ignoring the potential of renting out or sub-leasing part of a building to a third party.

Mr Bagust at RICS says businesses waste money by making the wrong property decisions.

‘Property is often the second highest business cost after wages, yet many companies do not have an effective property strategy: he says – adding that, although there are benefits to leasing, those buying a property have the opportunity to plan for the long term.

‘Some types of business require a large amount of plant and equipment in the building, with high installation costs. As you will want to write off these costs over many years, you will not want to change premises at frequent intervals: he says.

‘You will generally have more freedom of action as an owner than a tenant. You would not need to obtain a landlord’s approval, with the attendant time delays and costs, for changes that you want to make: