Office Lease vs Buy Calculator: Run the Numbers

When scaling your business, one of the biggest financial decisions you'll face is whether to lease or purchase your office space. Consider this, a 2,500 square foot Class B office in San Francisco. Over a decade, the median total occupancy cost for leasing is roughly $2.41 million, compared to $1.94 million if you buy with 80% LTV financing. That's a significant difference based on CBRE's framework. However, once you factor in the opportunity cost of your down payment, leasing often regains its advantage. Owning typically makes sense when you plan to occupy for 10 or more years, can comfortably put down 25 to 30 percent, and are ready to assume responsibility for capital expenditures.

The Long-Term Cost Question

Deciding between leasing and buying is essentially a 10-year Total Cost of Ownership (TCO) calculation. Three major factors drive this comparison. First, there's the cost of capital. Leasing generally has no direct capital cost beyond initial deposits, while buying involves debt costs and the opportunity cost of your equity.

Second, consider capital expenditure responsibility. With a lease, your primary capital outlay is tenant improvement (TI) allowances. As an owner, you're on the hook for major structural components like the roof, HVAC systems, and parking lot maintenance.

Finally, think about exit liquidity. A lease simply ends, leaving you with no equity. Owning, however, can result in sale proceeds or refinancing options at the end of your term. It's worth noting that the SBA's 504 program can shift the math towards buying for small businesses, allowing for as little as 10% down.

A 10-Year TCO Breakdown

Let's look at a hypothetical example: a 2,500 SF Class B office in a major US city. We'll assume a $300 per square foot acquisition cost, totaling $750,000. For the purchase, we'll use a 25% down payment, with a 75% conventional commercial mortgage at 7.5% interest, amortized over 25 years.

Leasing Scenario (10 years)

This scenario assumes a base rent of $50 per square foot, with a 3% annual escalation. Triple Net (NNN) charges are $12 per square foot, and Common Area Maintenance (CAM) is $5 per square foot.

• Total base rent over 10 years: $1,432,000
• Total NNN charges over 10 years: $300,000
• Total CAM charges over 10 years: $125,000
• Less tenant improvement allowance (year 1): -$200,000
• Less free rent (4 months): -$42,000
• Plus broker commission (part of deal economics): $86,000
• Plus security deposit (3 months, refundable but capital parked): $32,500 net opportunity cost

The total 10-year occupancy cost for leasing comes out to: $1,733,500.

Buying Scenario (10 years)

For ownership, we're looking at a 75% loan-to-value, 7.5% interest, and a 25-year amortization.

• Down payment: $187,500 (This is your initial capital outlay, with opportunity cost over 10 years)
• Monthly mortgage payments: $4,159 multiplied by 120 months equals $499,000
• Property tax (10 years at $12/SF, 3% escalation): $343,000
• Insurance, maintenance, utilities (10 years): $250,000
• Capital expenditures (HVAC in year 7, parking resurface in year 5): $80,000
• Opportunity cost on the $187,500 down payment at 7% (10 years): $181,000 forgone

The sum of recurring costs plus opportunity cost gives us a total 10-year cost (buy, gross) of $499,000 + $343,000 + $250,000 + $80,000 + $181,000 = $1,353,000.

Now, let's factor in the terminal value:

• Less terminal value at year 10 (assuming 3% appreciation): -$757,000 (representing sale proceeds)
• Plus mortgage principal remaining at year 10: $440,000 (paid off through the sale)

The total 10-year net cost for buying is $1,036,000.

In this specific hypothetical, buying appears approximately $700,000 cheaper over a decade. However, this depends entirely on your appreciation assumptions. A flat or negative market can significantly alter these figures. Capital costs and operating expenses also play a critical role. For precise modeling, always consult with a CPA and a tenant-rep broker.

The math here is illustrative, actual deal numbers will vary widely based on your specific market and property. For a comprehensive methodology, refer to CBRE's Lease vs Own analysis framework.

When Ownership Makes Sense

There are specific conditions that make buying a more favorable option for your business.

1. Long-Term Occupancy: You plan to stay in the space for 10 years or more. Transaction costs, including closing fees, broker commissions, legal fees, and environmental reviews, can quickly erode savings if your occupancy is shorter.
2. Significant Down Payment: You can comfortably provide 25 to 30 percent down through conventional financing, or 10 percent using an SBA 504 loan.
3. Stable Business Cash Flow: Owning means committed monthly debt service. You can't easily sublet your way out of a downturn, so consistent cash flow is crucial.
4. Willingness to Operate the Building: You're prepared to handle responsibilities like roof repairs, HVAC system failures, and parking lot resurfacing. These become your direct expenses.
5. Market Appreciation Potential: The local real estate market shows a strong potential for appreciation. In structurally declining markets, the economics of buying can be risky due to uncertain terminal values.
6. Specialty Space Needs: If your business requires highly specialized space, such as for restaurants, manufacturing, or life sciences, owning gives you long-term control over buildout decisions that a landlord might otherwise restrict.

When Leasing is the Better Choice

Conversely, leasing offers advantages under different circumstances.

1. Short-Term Occupancy: You anticipate occupying the space for under 7 years. The amortization of transaction costs over a shorter period strongly favors leasing.
2. Rapid Business Growth: Your business is growing quickly and unpredictably. Ownership locks you into a specific space, whereas leasing provides the flexibility to expand or contract as needed.
3. Focus on Core Business: You prefer to concentrate on running your business rather than managing building operations. Your time and resources are better spent elsewhere.
4. High Cost of Capital: If your capital is expensive, the opportunity cost of a significant down payment becomes a major factor. Leasing frees up capital for other business investments.
5. Soft Market Conditions: You're in a tenant-favorable market with generous concessions. Free rent, tenant improvement allowances, and flat rent periods can make leasing significantly more attractive, especially in markets like San Francisco, Portland, or downtown Seattle in Q1 2026.
6. Preserving Borrowing Capacity: A real estate purchase can reduce your business's credit borrowing capacity. If you foresee needing debt for inventory, working capital, or hiring, leasing keeps that capacity open.

SBA 504 Financing for Owner-Occupants

The SBA 504 program offers a compelling alternative for owner-occupants looking to purchase commercial real estate. It allows for a significantly lower down payment, at just 10 percent, compared to the 25 to 30 percent typically required by conventional loans.

The structure, as per SBA 504 program documentation, involves:

• A 50% conventional first mortgage from a bank.
• A 40% SBA 504 second mortgage (debenture).
• A 10% borrower equity contribution.

The SBA 504 second mortgage often carries below-market interest rates, which can reduce your overall cost of capital.

To be eligible for this program, your business must meet certain criteria:

• You must occupy 51% or more of the building.
• It must be a for-profit business.
• Net worth must be under $20 million, and average net income under $6.5 million (after-tax).
• There are specific use restrictions on the property.

For small businesses where the down-payment requirement is a primary hurdle, SBA 504 financing can fundamentally shift the financial calculations, making ownership a viable option.

The Capital Expenditure Challenge

One of the most frequently underestimated costs for owner-occupants is capital expenditure, particularly on older buildings. A 30-year-old building, for instance, typically accrues 3 to 5 percent of its value annually in deferred capital expenditures over its remaining lifespan, according to BOMA Capital Expenditure Benchmarks.

Consider these common, expensive replacements:

• HVAC System: A typical useful life of 20 to 25 years. Replacing one on a 20,000 SF building can easily exceed $200,000.
• Roof Replacement: With a useful life of 25 to 30 years, costs can range from $80,000 to $200,000.
• Parking Lot Resurfacing: Generally needed every 15 to 20 years, this can cost between $30,000 and $80,000.
• Façade and Structural Repairs: These are less frequent, on a 40+ year cycle, but can easily run $100,000 or more.

Lessees typically do not pay these costs directly. As an owner-occupant, however, all these expenses become your responsibility as they come due. It's prudent to reserve 2 to 4 percent of your building's value annually specifically for capital expenditures if you own.

Modeling Your Specific Deal

To accurately assess your options, you need to model both scenarios. For the leasing side, you can leverage a robust TCO calculator. For the buying side, here's what you should factor in:

1. Initial Outlays: Your down payment plus closing costs, which usually amount to 3 to 5 percent of the purchase price.
2. Monthly Mortgage: The principal and interest payment based on the interest rate you can secure.
3. Annual Expenses: Property tax and insurance, accounting for annual escalation.
4. Operating Costs: Annual maintenance, utilities, and a capital expenditure reserve of 2 to 4 percent of the building's value.
5. Future Value: Estimate the terminal value at the time of sale, using a conservative appreciation assumption.
6. Opportunity Cost: Calculate the opportunity cost on your equity, typically 7 to 10 percent over a 10-year holding period.

Compare the 10-year net TCO for buying (after accounting for terminal value) against the 10-year TCO for leasing. A general rule of thumb: if buying is 15% or more cheaper in TCO, and you meet all the conditions favoring ownership, then purchasing might be your best bet. Otherwise, leasing is often the more flexible and financially sound choice.

Common Questions Answered

When is buying the right move?

Buying makes sense if you plan to occupy the space for 10 years or more, can make a 25 to 30 percent down payment (or 10 percent with SBA 504), have stable business cash flow, and are prepared to manage the ongoing operating responsibilities, like HVAC or roof maintenance. If your occupancy is under 7 years, or your growth projections exceed 25 percent, leasing usually wins out.

What's the biggest hidden cost of owning commercial property?

Capital expenditures. An older building, say 30 years old, typically requires 3 to 5 percent of its value annually in deferred capital expenditures over its remaining life. Replacing a new HVAC system in a 20,000 SF building, for example, can cost over $200,000. Always budget 2 to 4 percent of the building's value each year for these expenses.

How does SBA 504 financing impact the decision?

SBA 504 financing allows owner-occupants to purchase commercial real estate with only 10 percent down, as opposed to the conventional 25 to 30 percent. This can make ownership financially feasible for many small businesses that would otherwise be restricted to leasing. Eligibility requires 51% or more owner occupancy, for-profit status, and specific net worth and income limits.

Is the lease versus buy decision always a 10-year question?

Generally, yes. For occupancy periods under 7 years, transaction costs associated with buying (closing, broker, legal fees) often negate any potential savings. For periods exceeding 10 years, the financial spread between leasing and buying typically becomes significant enough to be a deciding factor.

What is the opportunity cost of ownership equity?

This is typically the 7 to 10 percent annual return you could have earned if you had deployed that capital elsewhere in your business or in other low-risk investments. For instance, on a $200,000 down payment over 10 years, the cumulative opportunity cost could be around $200,000 at an 8% rate. This is a material figure in the comparison.

Can I sublease space I own?

You can, but it's a different operational model than simply owning for your own occupancy. You effectively become a landlord, which brings its own complexities. Many owner-occupants who attempt this find the time commitment and operational burden higher than anticipated.

Are there tax benefits to owning?

Yes, you can depreciate the building (but not the land) over 39 years for commercial property under IRS Publication 946 MACRS rules. This offers a significant tax benefit, though it is recaptured upon sale. Consult your CPA for detailed depreciation calculations.

What's a build-to-suit alternative?

A build-to-suit arrangement is a long-term lease, typically 15 to 20 years, where the landlord constructs the property to your precise specifications. Economically, it's similar to owning for occupancy but without the equity component. This model is common in industrial and single-tenant retail sectors.

For full data and an interactive calculator, visit: commercialleasecost.com

Sources

1. CBRE Lease vs Own Framework, accessed 2026-05-02
2. SBA 504 Loan Program, accessed 2026-05-02
3. BOMA Experience Exchange Report, accessed 2026-05-02
4. IRS Publication 946 MACRS Depreciation, accessed 2026-05-02

This information is not financial or legal advice. Estimates are based on publicly available market data and broker reports. Commercial real estate is highly localized and deal-specific. Always consult a licensed commercial real estate broker, CPA, and real estate attorney before making any lease or purchase decision.