Why one should lease rather than buying warehouses

Warehouse management has become an integral business component to scale up businesses and ensuring customer satisfaction through state-of-the-art supply chain management and efficient inventorization. Warehouses ensure seamless and efficient product delivery framework, mapping logistics to a streamlined process ecosystem, spreading wings far and wide to satisfy customer requests from far flung regions. The big question then is: should entrepreneurs buy or lease warehouses? Seemingly a simple choice to make, but there are a variety of factors which go into making the decision. With the emergence of a massive real estate market, competitive pricing   models, warehouse decentralization has become indispensable for companies, especially those in e-commerce logistics, to ensure enhanced customer experience and loyalty.

 

According to CBRE, leasing of warehouses spaces has grown by a massive 31% Y-o-Y to 13 million square feet across 8 Indian cities in the first half of 2019 alone, with a total investment of more than USD 200 million. This points towards the potential growth prospects of a planned leasing model and its benefits to economize business cash-flow and optimize  risks.

 

Leasing costs is spread out over the time period of lease, rather than a lump sum amount. The businesses have a lot of flexible options to choose from, depending upon the business size, location, and those which are proximate to important infrastructural facilities for easier movement of goods. This also entails minimal/no repair and maintenance costs to be incurred by the lessee, and consequently minimal overhead expenditure. Since cost is often a critical deciding factor in sourcing assets, adopting the leasing route is often a profitable investment, especially with the wide-ranging business needs.

 

Let us look at some of the benefits your business value accrues as a result of  leasing assets:

 

1. Leasing is generally less expensive than buying, if arranged in a cohesive, efficient and future-oriented arrangement. Lease agreements must be reviewed with respect to major parameters like logistical services, financial impact, customer satisfaction and flexible options to up-scale business.

 

2. Lesser liabilities and overheads – Instead of focusing on providing exquisite customer service through an efficient supply chain management and timely delivery of services, owning assets poses additional liabilities arising out of repair and damages, re-selling assets and their valuation. With a dynamic market, technology and equipment needs have rapidly evolved, and it makes less financial sense to buy these assets than leasing them. Businesses would be better off in investing more capital on enhancing product value and service efficiency.

 

3. Leverage complementary business aspects - Your business should be known for the value it provides to customers, and resource allocation should be accordingly mapped to those needs. Leasing is an effective way to build networks and relationships, by gaining access to a plethora of business opportunities with other clients.

 

4. Leasing is the best option to consider when your potential for future expansion is high, avail tax benefits arising out of leasing and invest more time in nurturing innovation rather than getting tangled in managing owned assets.

 

An integrated, flexible, dynamic business outlook requires businesses adopt leasing, rather than buying as their preferred mode of sourcing assets, and implement their business prospects in an efficient and economic manner without unnecessary overheads.