Houston is known as a boomtown for small businesses. The city has seen amazing growth in the past years in terms of the number of small businesses and their success.
Having a growing business is exciting as a business owner, but how you handle growth can make or break your company. As your business grows, you might find yourself needing additional warehouse space for all your equipment or products.
Is it better to rent or buy a warehouse?
Business owners struggle with whether to rent or buy warehouse space for their company. Renting might seems like a more flexible option, but digging deeper into cost analysis it usually becomes more affordable to buy rather than rent warehouse space, especially in the Houston market.
Benefits and drawbacks of renting:
Benefit of renting: There is a large market for rental warehouse space in Houston. Whatever you’re looking for regarding size, price, location and amenities, chances are you can find something available for rent in Houston or the surrounding suburbs that fits your needs.
Drawback of renting: Many commercial property brokers require a 3 year commitment on rental agreements, and sometimes more. Once you sign, you’re on the hook for paying rent during the entire term of the lease unless you negotiated up front and had those terms written into the agreement. This financial obligation can tie your business to that particular warehouse space for years, and a lot of things can change during that time. How can you be sure that in 3 years (or more) your business won’t need more or less warehouse space, more employee parking areas, better access to major freeways, or upgraded equipment like larger cranes? You might have to limit how much your company grows or pass up opportunities to expand product lines if your warehouse isn’t able to grow with the business.
Even if you negotiate a short term warehouse lease, the cost of moving might leave you locked into the rented warehouse. The expense of physically moving equipment, inventory and offices can be very high, not to mention time consuming since you have to coordinate for everything to be packed, transported, unpacked and utilities set up within a short time frame. And don’t forget the cost of disruption to your business operations while your employees move and get settled into the new space. So even though you would be free to move after 6 months, it will probably make no business sense to do so.
Benefits and drawbacks of buying:
Drawback of buying: Buying any piece of real estate requires a more substantial about of cash up front than renting. The market for warehouses available for sale is much smaller than for rentals, so it might take longer for you to find the perfect space. Also, the process of getting financing for any commercial space can be long and tedious, and for any business loan you’ll need to prove that your company has at least a few years of stable income and a solid credit history.
If you’re just starting out and have little or no business credit history or financial data, the best option might be to buy a mixed use residential/commercial property with a house and warehouse (see 7126 Charpiot Lane, Humble TX 77396 for an example). This kind of place can be purchased with a residential home loan which is easier to qualify for, cheaper as far as down payment requirements and interest rates, and can later be sold as either residential or commercial space. This can easily be done in Houston where there is no zoning, but be sure there are no HOA restrictions against running a business from the property.
Benefit of buying: Real estate in most places, but especially in Houston, keeps growing in value year after year. Owning your own commercial space is the only way to profit from the increase in property values. Also, when you are the owner you can make improvements to existing equipment and make upgrades as needed. If the property has additional land, you can even expand and add on warehouse buildings and parking spaces as your company grows.
Where do you find warehouses for rent or sale in Houston?
A quick search on Google or on MLS services (like Loopnet or Commgate) will yield lots of options. For mixed use residential/commercial properties you have to also search HAR.com, which is the best place to find properties in Houston. If there is a particular neighborhood you like, drive by every few days to see if you find for sale by owner signs or signs that a business might be packing up and moving.
And most importantly, ask your commercial real estate agent to find you a list of warehouses that fit your requirements. The Jet Team at Realty Associates can do thorough searches and even find you “pocket listings”, which are properties that will be going on the market soon but are not yet being marketed. These are great because they allow you to make an early offer and possibly negotiate a better lease or purchase price.
How much warehouse space do you need?
Whether renting or buying a warehouse, you need to plan for how fast and how much your company will grow over the next few years. As mentioned above, regardless or whether you buy or rent, you don’t want to have to move more often than required because moving is costly. Make sure the warehouse you’re considering has enough room for expansion (like additional units you can rent next door or extra land you can build on if you own).
How do you choose a warehouse?
Location is critical for any piece of real estate, whether leased or owned. Houston highways can spend years under construction, so do your research think of how that might affect your company. Construction can affect employee’s commute in and out of the warehouse and your customers might be discouraged from visiting your business if it is next to a major highway construction zone.
Parking spaces for employees and customers also needs to be taken into account. Will the spaces be enough if your company hires 10 more people in the next few years? Will you lose customers if they try to visit your business but can’t find a place to park?
What other things should you consider?
Make sure your warehouse and any office space is comfortable for your employees and has the things they need to be productive in their jobs. If there are no convenient places for them to go to for lunch, does the business have a comfortable kitchen and break area? Are there enough meeting spaces for your employees or clients?
if buying, hire a commercial appraiser and inspector to do complete analyses of the property before investing. If the appraisal value comes back way under the asking price, make sure you understand the reasons for that and the risks associates with paying more than market price for a property. Your inspector should have experience with commercial spaces and should give you a detailed report about the findings, which you can use to negotiate repairs with the seller before closing on the deal.
Houston neighborhoods are constantly changing, so do your homework before committing to a location. For example, East downtown (EADO) was mostly industrial until a few years ago but is seeing a boom of new apartments and restaurants as the neighborhood becomes more gentrified. Street parking is now more limited and property taxes are going up as the area becomes more popular, which affects the warehouses and businesses nearby. On the flip side, property prices have skyrocketed so those businesses will profit whenever they sell.
Your real estate agent should be knowledgable about commercial spaces, have an idea of how neighborhoods and markets have changed in the past and be able to help you determine the costs and benefits of renting or buying a warehouse.
Find a good commercial lender who can quote you different types of mortgage alternatives so you can find one that best fits your business’ needs. There are smaller banks in Houston like Allegiance or Frost that specialize in lending to small businesses, so don’t limit your research to the large banks.
Finding the perfect warehouse for any business in Houston takes a bit of time and work, but it’s not impossible. If done right, the right place can help your business grow and succeed. Just do your homework and seek out help from experts who can you find the right place.