You have a commercial property that you no longer need. You now have the following question: Should you rent out your commercial space or sell it? Which will make you more profit? If you sell it, you will immediately have a lot of money that you can invest in your business.
Renting, on the other hand, would be a secure and steady source of income that does not require any work. In addition, you could delay the sale a little longer to wait and see how the property market develops. Maybe you will get even more money for your property in a few years?
I can understand your considerations very well. To give you a little help in making your decision, I have listed the advantages and disadvantages of both options for you.
Advantage of renting: company revenues increase due to long-term rental income
If you rent out your commercial property, you will have regular incoming payments. Especially in the case of commercial real estate, these are long-term revenues, as commercial leases are usually concluded for a period of ten years. In this way, you increase the capital of your company without a lot of work.
Advantage: Rental prices are almost always individually adjustable
Many entrepreneurs with a property are afraid of the rent cap - also known as the Mietpreisbremse. However, this is not valid for renting commercial property in certain cases. For example, accommodation, forwarding or warehouse businesses are exempt from the Rent Act (MRG). (Source: wko.at)
Therefore, rent prices can usually be set freely there and it is also not necessary to adjust the rent to the local rent price. Moreover, you can adjust the rent in times of strong inflation and do not lose money.
Please note, however, that any rent increases must be regulated in advance in the contract. You should also seek advice in advance as to whether your commercial space is subject to the MRG or whether a full or partial exemption from the MRG applies.
Advantage: Real estate as a capital investment
If you rent out your property, you may be able to increase its market value. Your commercial property is an investment in the future. How should you understand this?
From my practical experience as a real estate agent in Tyrol, I know several entrepreneurs who first rented out their commercial property and then sold it when the market situation was favourable. The rental served as a temporary solution until the sale.
However, there are also some disadvantages to renting, which can affect your financial situation in particular.
Disadvantage of renting: Lack of tenant payments entails financial risks
Letting your commercial property involves a high financial risk. Sole proprietorships or SMEs usually have smaller cash reserves than large corporations. If the order situation is poor, rent payments may be delayed or not made at all.
If your tenant has to file for insolvency, he or she can no longer pay rent and you are left with the costs. These are considerable sums of money that you normally cannot recoup so quickly.
Disadvantage: Frequent and prolonged vacancies mean loss of money
Vacancies are more common when renting out commercial properties. For example, if a tenant moves out, conversion work may be necessary to make the property suitable for re-letting. During this time, rent payments also stop.
In addition, finding tenants is more difficult than when selling a house or flat. Due to the specific structure of a commercial property, they are often only suitable for a certain industry. For example, equipment needed for operations cannot be installed in every hall. This is why there are fewer interested parties for commercial properties.
If your property stands empty for a long time, this reduces the market value. Real estate professionals take advantage of this situation to further depress the price of your property. Ultimately, you have to make the decision whether to sell the commercial property below value or offer it at a low rental yield.
Disadvantage: More effort and costs than expected
As the landlord of a commercial property, you are responsible for the maintenance of the building. You are also the contact person for tenants' concerns. Accordingly, you must fulfil certain duties that are regulated in the contract.
- Maintenance of the property, including roof or plumbing
- Maintenance of equipment for heat generation, such as heaters or boilers
- Repair of serious damage, e.g. water damage or health hazards (e.g. mould).
- Ensuring the proper functioning of electrical installations
When you rent out your property, the rent payments are a steady source of income. However, landlords sometimes underestimate the costs and time they have to invest to keep the building in good condition.
Interim conclusion: Minimise the risks of letting through hedging
At first, renting out a commercial property sounds like a lucrative way to get money without doing much.
However, as a landlord you are exposed to financial risks. These must be weighed up and minimised in advance. For example, you should check the creditworthiness of potential tenants.
In addition, you can extend the deposit amount to six gross monthly rents if the Tenancy Act is fully applicable. This way you will not incur any financial loss or it will be less in case of loss of rent or if you have to find a new tenant.
If your property is subject to the partial or full exemption area of the MRG, the deposit amount is only limited by the General Civil Code. This applies in particular in cases of immorality, usury or gross discrimination.
As a real estate agent, I am well aware that renting out a property is preferred by some entrepreneurs. This way you can put the property on the market at the best possible time and make the highest possible profit.
I can understand this train of thought, especially as the prices paid for certain commercial properties continue to rise.
However, as an expert I can only advise you to take advantage of the current situation on the real estate market to sell your commercial property.
Advantage sale: commercial space sale creates immediate liquidity
The low interest rate situation is currently creating high demand in the real estate market. There are plenty of potential buyers of commercial real estate. You should take advantage of this phase before property prices stagnate or even fall.
If you were to rent out your property, you would only receive the amount of money you currently earn with a sale in a few years or even decades. With a sale, on the other hand, this money is available to you for immediate investment.
You can either put this capital into your business or think about a new investment. As I said, the low-interest phase is the best reason to look for a new property now.
Advantage: Release from landlord obligations
After selling your property, you no longer have to deal with it. If problems arise with the installations or the pipes in the building, the new owner has to take care of them. The time-consuming maintenance of the property is also no longer your responsibility.
Rent defaults, finding tenants, etc. - you no longer have to worry about any of these things once the money for the sale has been deposited in your company account. You are no longer responsible for this.
But of course, the sale is also fraught with risks that you as an entrepreneur should be aware of.
Disadvantage: Sales errors and incorrect tax calculations cost you money
Certain taxes are incurred when selling a commercial property. Until 2012, the speculation tax applied, according to which the sale of a commercial property was tax-free after 10 years.
In the case of companies subject to accounting (e.g. limited liability companies and other corporations), taxes are incurred on the sale within the framework of corporate income tax. This means that profits from the sale are taxed at 25 percent. By 2024, the percentage is to be reduced to 23 percent.
The calculation of the tax levies is absolutely necessary before a sale in order not to give away any money. If you would like to read up on this in more detail, I recommend our "Selling commercial real estate: these are the taxes you have to reckon with".
Another risk of the sale is an incorrectly calculated sales price. In Tyrol, the selling prices for real estate are very high and even small price fluctuations can amount to a minus of several hundred thousand euros.
For example, when selling a commercial property of 2 million euros, "only" a 10 percent price difference means 200,000 euros. A considerable amount that you do not want to give away.
Therefore, inform yourself in advance about the current price development and have an expert in Tyrol prepare an appraisal for you. This way you minimise the risk of selling your property below value.
Rent out or sell commercial space: Which is the better decision?
The current market situation is attracting many interested parties for commercial properties - both for rent and for sale.
Some types of commercial property are more suitable for renting. For example, in the case of office buildings, companies tend to look for properties for rent. In such cases, it may be cheaper for you to rent out your property.
Do you want to know what the different types of commercial property are? Read our blog post "Commercial property: What counts?".
The situation on the real estate market has you leaning towards selling your commercial property? In order for you to achieve the best price and avoid costly mistakes, detailed advice is necessary.
A professional will help you set the right selling price, inform you about applicable tax levies and support you in marketing your commercial property. This way you can sell your commercial property quickly and profitably.
Conclusion: Comprehensive advice helps in the decision-making process
As you can see, the decision as to whether you should rather rent out or sell your commercial space is highly dependent on your initial situation. What type of commercial property is it? Is there a high demand for it? What about your finances?
If you are still not sure whether to rent or sell your commercial space, it is best to rely on an expert. He or she can inform you about your options during an initial meeting and assist you in the further sales or leasing process.
Would you like comprehensive and competent advice? Then please feel free to contact us and we will take a close look at your case in a free initial consultation.
We analyse your initial situation and the circumstances of your business. Then we decide together with you whether it is more lucrative for you to rent or sell your commercial space.
Due to our many years of experience as real estate agents and experts for real estate in Tyrol, we can provide you with comprehensive advice for your venture. In doing so, we always take into account the requirements of the Tyrolean market.
Are you interested? Then contact us by e-mail(immobilien@arealita.at), by phone(+ 43 512 580 242) or via our contact form.
I would like to obtain a non-binding offer for my commercial property in Tyrol.
With kind regards
Yours, Bernhard Großruck
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My name is Bernhard Großruck. I work as a real estate agent and appraiser in Innsbruck and would like to give you helpful tips about real estate in this blog.