Small offices in difficult times – rent or buy?

 

Although the residential housing market has been hit much harder by the slowing economy, the commercial real estate sector has not been spared the hardship. As companies reduce the number of employees and often start saving on premises, the need for smaller offices is increasingly felt. According to specialists, this trend is especially felt in the more conservative Klaipėda office market, where the need for small offices has always been greater.

 

 

According to Vida Minkštimienė, Development Project Manager at UAB “Eika”, the office market in the port city is significantly different from, for example, Vilnius. “Clients here have always tended to choose comfortable, but smaller offices – after all, the average number of employees in an office of the same company in the third largest city of Lithuania is almost 5 times smaller than in Vilnius,” says the specialist.

In Klaipėda, especially recently, there has been a great demand for smaller, up to 100 square meters, high-quality, functional offices. Until now, large premises have mostly been offered here, which are not popular among small and medium-sized businesses. “When we started the construction of the “Baltic Business Center” in Klaipėda, customers were most interested in premises of 30-50 square meters,” says V. Minkštimienė.

 

 

Until recently, commercial projects throughout Lithuania were immediately designated for rent or sale. Therefore, clients chose an office location based on whether they intended to buy or rent the premises.

Today, real estate developers have become much more flexible, and the client can now choose what is more convenient for him – to purchase or rent premises in the same commercial center. In addition, in order to achieve more favorable conditions for the acquisition of small offices, another alternative has been offered – leaseback.

 

 

According to V. Minkštimienė, as borrowing costs become more expensive and conditions at banks become stricter, not only clients but also real estate builders and developers have had to postpone development plans for a year or even two. “Therefore, especially now, in times of economic hardship, when real estate developers are making compromises in response to market changes, the best way is to acquire offices on the most favorable terms,” ​​she advises.

Perhaps the most optimal, mutually beneficial solution that real estate developers could offer to clients is to purchase commercial premises through a leaseback.

Currently, Klaipėda businessmen can already purchase functional offices and retail premises of a small area, with all amenities, on a lease-back basis. After signing a lease-back agreement, during the lease period, usually about a couple of years, clients pay rent, and upon its expiration, they can buy out the premises and all the money paid for the rent will be included as an initial deposit for the premises. In this way, after paying off the developer in full, the office becomes the client’s property.

 

 

“This is a great solution at this stage of the economy,” says V. Minkštimienė. According to her, this gives companies the opportunity to purchase the necessary real estate on flexible terms and much more conveniently than borrowing from a bank.

“By paying office rent, you are kind of postponing the purchase for a while, and after a couple of years, when the hard times are over, you can purchase the premises. This is extremely convenient, because many entrepreneurs can already choose an office or commercial premises of the right size now,” says the project manager of the Klaipėda Baltic Business Center.

If the country’s economy continues to slow down, experts predict, companies will primarily try to reduce costs related to maintaining premises. Therefore, in the future, they may decide to move to smaller or simply new premises at an attractive price.