Buying versus leasing a retail shop

Buying and leasing solve different problems. Buying converts an occupancy cost into an asset position and gives long-term control over the premises, signage and fit-out. It also ties up capital, adds transaction costs and makes relocation slower.

Leasing preserves capital and allows a business to test a catchment before committing. It exposes the occupier to renewal risk, escalation and, in some cases, restrictions on alterations.

A useful way to decide is to separate three questions. First, how certain is the location decision? If the catchment is unproven for the format, leasing usually carries less downside. Second, how specific is the fit-out? Heavily customised premises are easier to justify when the occupier controls the asset. Third, what is the cost of capital for the business compared with the cost of occupation?

Whichever route is chosen, the underlying property checks are the same: confirm the carpet area, the permitted use, the ground-floor component, and the charges that sit outside the headline price or rent.