For manufacturers, distributors, and growing businesses, real estate is more than just a capital decision.
At First American Bank, many of our clients treat occupancy as a fixed expense. For companies navigating reshoring, foreign direct investment, or capacity expansion, that assumption deserves a closer look.
For many business owners, the buy-versus-lease decision boils down to flexibility, location, size, and cost. Room to grow may enter the discussion, but too often the focus stays on what works today.
Consider a 100,000 square-foot industrial building in Chicago. Excluding taxes and maintenance, that equates to an annual occupancy cost of $1,010,000, assuming an average rent of $10.10 per square foot (SF). To buy that same building, it costs on average $91 per SF: a purchase price of $9,100,000. Finance that same building through a SBA 504 loan, which requires as little as 10% down, and annual cost drops to $714,041. That's a savings of just under $296,000 in year one.*
While loan payment amounts can be fixed, rental rates typically increase annually. According to CoStar, industrial rents have increased an average of 2.9% annually over the past decade. That means that the $1,010,000 annual rent payment today becomes roughly $1,344,235 in ten years. Since the loan payment stays fixed, the gap widens every year, and by year 3 you’ve already recovered your initial down payment.
Over twenty years, the cumulative difference totals approximately $13.4 million in savings, nearly 1.5x the building's original purchase price. Plus, you own the building as an asset.
What “Capacity” Really Means
Capacity is a business' ability to produce, store, and ship without disruption, and ownership puts that control directly in the company's hands.
The stakes are rising. Manufacturing-related requirements now account for nearly 20% of all industrial leasing nationally, up from 13% before the pandemic. A manufacturer adding a second shift or a distributor expanding cold storage can't afford to outgrow a lease mid-cycle.
A simple 3-step framework
Ownership isn't right for every business. These three questions help frame the decision:
1. Compare total occupancy cost, not just rate.
A lease that looks cheaper today often isn't by year five. Stack cumulative rent, including annual escalators, against fixed debt service over the same period. The crossover point is usually earlier than most owners expect.
2. Test the growth fit.
A facility that works today may not accommodate new equipment, additional headcount, or expanded inventory two years from now. If the building can't scale with the business, the purchase doesn't solve the problem.
3. Protect working capital.
Before committing, stress-test the debt service against a realistic revenue decline. Equipment financing and inventory needs don't pause because occupancy costs spiked.
“As supply continues to tighten across the industrial real estate market, companies should revisit ownership versus leasing strategies,” asserted Michael Magliano, Executive Managing Director at Cushman & Wakefield. “Partnering with advisors, such as First American, who understand long-term financial and operational needs will prepare you to go to market.”
A final note of advice: Waiting for lower rates is often a distraction; even a 1% drop in rates is small next to the long-term savings of owning, so the real question is whether the asset improves cost control, supports growth, and fits the company’s risk plan.
With commercial lending teams in Chicago, Miami, Tampa, and Milwaukee, get in touch with our local decision-makers who understand your market.
