When is the Right Time to Buy Your Office Space Instead of Leasing?
This is a question I have heard countless times from clients throughout my career. Typically, it arises when lease rates hit historical highs or when property values drop enough to look attractive.
In 2025, the answer is more complex than it has been in decades. We are navigating a unique economic intersection: interest rates are stabilizing after a period of rapid hikes, office valuations have undergone a massive reset due to the hybrid work revolution, and a wave of distressed assets is hitting the market.
For many companies, the idea of owning their real estate is emotionally appealing; no landlord, building equity, total control. However, for corporate users, this must remain a strictly financial and operational decision. You are in business to provide a product or service, not necessarily to speculate on real estate.
In today’s market, the decision to buy versus lease involves evaluating not just the cost of capital, but the fundamental shift in how we use office space.
Why 2025 Might Be the Right Time to Own
While the “free money” era of near-zero interest rates is behind us, the 2025 landscape offers a different kind of opportunity for the savvy, well-capitalized buyer.
Valuation Resets (The “Basis” Play)
Unlike the steady appreciation of the 2010s, office values in many markets have corrected significantly. Distress is real. Many existing landlords are facing loan maturities they cannot refinance at today’s rates, forcing sales at steep discounts. This allows owner-occupiers to acquire Class A or B+ assets at a cost basis significantly below replacement cost, something we haven’t seen in years.
Stabilizing Interest Rate Environment
We are no longer in the aggressive hiking cycle of 2022–2023. With the Federal Reserve signaling and executing rate cuts, borrowing costs are becoming more predictable. While rates are not at the historic lows of 2011 or 2020, the stability allows for accurate financial modeling. Furthermore, if you buy now and rates continue to drift lower, you have the future option to refinance.
Control in a Volatile Market
In a leasing scenario, your stability is tied to your landlord’s financial health. In 2025, even tenants paying rent on time face risks if their landlord defaults on the building’s mortgage. Owning your building removes the risk of a landlord foreclosure disrupting your operations.
The Headwinds: The Cost of Capital
We must address the elephant in the room: Interest Rates.
In previous cycles, low borrowing costs were the primary driver for buying. Today, the cost of debt is higher. A mortgage interest rate of 6% or 7% changes the math compared to the 3% rates of the past.
- The “Negative Leverage” Risk: In some cases, the cost of borrowing may exceed the immediate capitalization rate (yield) of the property.
- Cash is King: The buyers winning in 2025 are those with significant cash reserves who can put down larger down payments (35-50%) to reduce debt service and secure financing from cautious lenders.
Weighing the Benefits and the Risks
An attractive purchase price does not always translate into the best operational decision.
Leasing Benefits
- Flexibility: The biggest advantage. Hybrid work patterns are still evolving. Leasing allows you to adjust your footprint every 3–5 years without being anchored to a mortgage.
- Tenant Market: Landlords are aggressive. To fill vacancy, they are offering unprecedented concession packages with attractive tenant improvement allowances and months of free rent that can make the effective cost of leasing surprisingly low.
- Capital Preservation: Keeps your capital available for R&D, hiring, and core business growth rather than trapping it in a illiquid real estate asset.
Leasing Risks
- Landlord Default: As mentioned, if your landlord hands the keys back to the bank, service levels can drop, and operational headaches can ensue.
- Rent Reset Risk: If the market recovers swiftly, you could face higher rents upon renewal (though this currently seems like a longer-term risk).
Ownership Benefits
- Asset Appreciation (Long Term): Buying at the bottom of the cycle. If you buy a distressed asset today, the upside potential over a 10-year hold could be substantial as the market normalizes.
- Tax Advantages: Depreciation and interest deductions remain powerful tools for profitable companies to shield income.
- Control: You control the HVAC hours, the security, and the renovations without asking for permission.
Ownership Risks
- The “Office” Stigma: If remote work persists or accelerates, the underlying value of office assets could remain suppressed for longer than expected.
- Capital Expenditures: In an older building, you are on the hook for new roofs, HVAC systems, and compliance with increasingly strict “Green Building” energy mandates in many cities.
- Illiquidity: Selling an office building in 2025 takes much longer than selling one in 2019. You cannot cash out quickly.
Decision Drivers for the Modern Era
When I consult with clients today, we look beyond just the mortgage vs. rent comparison. We ask:
- Workforce Strategy: Is your headcount static, or could AI and remote work cut your space needs by 30% in two years? (If yes, Lease).
- Cash Position: Do you have the surplus cash to handle a 40% down payment without hurting operations? (If yes, consider Owning).
- Horizon: Are you committed to this specific geography for 10+ years? (Ownership requires a long runway to weather cycles).
- Asset Class: Are you buying a “commodity” office building or a specialized facility? Specialized facilities (medical, lab, industrial) are generally safer bets for ownership than generic suburban office space.
The Verdict
The buy versus lease decision in 2025 is less about “cheap money” and more about “smart value.”
Today’s market creates a generational opportunity for the commercial space user to play “contrarian” and purchase assets at bargain terms. However, it requires a strong balance sheet and a stomach for the current volatility. If your company values flexibility above all else in this changing work environment, leasing and taking advantage of desperate landlords remains the prudent path.
Owning is typically more advantageous as a long-term decision. Keep the end in mind.
During my career, I have helped users lease, purchase, build, sale/leaseback, sublet, and dispose of office, medical and industrial space. I am ready to help you make and execute a prudent decision.
