Corporate Real Estate: An Asset or an Opportunity Cost Of Capital

Economic shift to information age necessitates a review of corporate real estate strategy, positioning and perhaps a debate on the buy/let decision by companies.

Property as an investment asset provides owners with numerous financing options such as mortgage bond, sale and leaseback transactions and getting an equity investor. It does however require huge down payments and cash outflows in the process, which represents an opportunity cost of capital. The cash could be used for furtherance of the business objective.

There is a need for real estate to remain flexible to complement business strategies. Owning may potentially lock an owner long term even where mismatches between property and business objectives arise. Letting does provide companies with some degree of flexibility on lease durations and avoids complexities of financing a property.

Leases however are engineered for profit by the lessor and can be expensive in the long run.

The primary mission of directors is to utilise scarce capital to increase shareholder value and perhaps no one solution exists to corporate real estate with each having pros and cons? Perhaps the type of entity and stage in the life cycle of the business determine what strategy would suit the business?

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