Lease, build or buy? Economy influences commercial real estate decisions.

• Author: Sergeant, Deborah Jeanne
• Position: BUILDING ALASKA

If your company needs new digs, the big question is "lease, build or buy?" The answer to this query relies mostly upon your company's needs, what's available in your area, and how the sluggish economy has impacted real estate. Consider also the advantages and disadvantages of any of the three choices to help you make the decision that's right for your company.

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Companies that lease their facility can be more nimble with their operation. If they plan to stay in business only for a short-term opportunity or contract work comprised of five years or less, Vernon Rush, a broker and president of Alaska Capital in Anchorage, advises leasing as the most sensible solution.

"There are fewer risks in the short-term," said Pamela Marsch, broker with Enterprise Brokers in Anchorage.

If you need to move because of growth, downsizing, or changes in how you do business that your current building won't accommodate, a lease may be easier to break (or fulfill) than unloading an owned property. Since the landlord is responsible for building maintenance, you can count on your monthly facility expenses to remain relatively the same unless the rent is raised. This feature of leasing can help keep cash flowlooser, which can be vital for a new or small business.

Firms leasing their space can avoid the burden of building and grounds upkeep, including cleaning, repairs, landscaping, snow removal and improvements, which may all be part of the lease contract.

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The economy's positive impact on leasing includes the ability to lease a better space that what you may have previously been able to afford because of current low rates. Tim Potter, director of planning at DOWL HKM in Anchorage, observed the upgrade phenomenon in the 80s.

"It was very common for people leasing C [-rated space] to move up to B and B to move up to A because the cost shifted that much," he said. "When the economy picked up again, there was a reverse move when leases went up."

Nicer space may help your business if appearances and location matter to your bottom line. If not, stick with your current building class at your new place and enjoy the savings of lower rent.

Leasing a facility does present disadvantages, however. You won't build any equity in the property. All those rent payments are simply part of operating expenses and in the long run, you're losing lots of money.

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You also cannot control every aspect of the structure and grounds, which may...