Choosing a Business Location: Test, Rent or Buy
Most bad location decisions are made in a hurry, after months of searching, when a good-looking property finally appears. Slow down, test the location, and only then decide whether to rent or buy.
Is footfall the same as demand?
No. A busy street does not mean busy shops. People may only be passing through, or may not be your kind of customer. Watch who walks by at the hours that matter to you, and ask honestly whether they look like your customer.
What does the neighbourhood tell you?
Look at nearby businesses. If three similar businesses opened and closed at the same address in five years, the location is telling you something. If several different businesses are doing steady work nearby, the area probably supports yours.
Does the space fit your format?
- A restaurant needs the right kitchen-to-seating balance.
- A clinic needs a waiting area that is not cramped.
- A shop needs enough frontage to be seen from the road.
- A warehouse needs good access for vehicles.
A cheap rent does not fix a space that does not suit your business.
Do the numbers work in a cautious case?
Estimate revenue against rent, fit-out cost and staff. Use figures you would be comfortable showing a lender, not best-case ones. If the location works only when everything goes right, it is a risky location.
Should you rent or buy?
This is less a property question than a question about where to put your money. Cash tied up in a building cannot be used for stock, hiring or opening the next outlet.
- Rent when: you are testing a new area or format, or your growth plan needs cash.
- Buy when: the location is proven, you will stay for ten years or more, suitable rentals are scarce, or you need full control over changes and timings.
Compare both over seven to ten years. On the buying side, add the purchase price, loan interest, maintenance and the return that money could have earned elsewhere (this last part is called opportunity cost). On the renting side, add all rent paid and the flexibility it gives you. Many owners are surprised by the answer once it is on paper.
If you already own property you are not using well, see the guide on getting more value from business property.
Quick checklist
- Watched the street at your key hours
- Checked which similar businesses lasted nearby
- Space fits your format and workflow
- Revenue estimated on cautious numbers
- Rent versus buy compared over 7-10 years
- Lease terms and approvals checked by a lawyer
Common questions
How long should I observe a location?
Watch different days and times for at least a couple of weeks, including your busiest and quietest periods.
Is buying always better in the long run?
No. It can be, if the location is proven. But it ties up money that might earn more in the business itself.
What should I check in a lease?
Check the term, renewal rights, rent increases, who pays for repairs, and what happens if you want to exit early.
Need help applying this to your situation?
Book a ConsultationThis article is general information, not legal, tax or financial advice. Please consult a qualified professional for your situation.