Why Big Business Don’t Buy Premises?

Because ultimately the accountants run the show. Have a squizz at the Balance Sheets of major companies and the “Property, Plant and Equipment” line. They are forever trying to get these down to a minimum. It’s a non-current asset.

I’m not saying it makes any sense at all, and it’s only been trendy for the past couple of decades……probably copying the latest trends from the US. I don’t agree with their philosophy at all, and think it creates a marvellous foundation for the company to grow further…..just as Ray Kroc does with his McDonalds. In fact, he was quoted once as saying he isn’t in the burger business, that just keeps the tills ticking over, he’s into the real estate business (the dirt underneath the restaurants) and that’s where he makes most of his dosh in the longer term, by owning very valuable (usually corner lots) in most CBD’s around the world.

Also remember, leasing is a direct input cost, and therefore fully tax deductible, which is a long way removed from the mindset of most renters, which feel the pain of paying rent every time from there after tax back pocket.

Also, if your business is able to sustain 20 or 30% growth year in year out, it stands to reason you don’t want to expose your cash to a market – real estate – that albeit does increase, doesn’t necessarily go up consistently as well……everything in business is comparative. Good is only good if compared to something average. Good compared to outstanding is not good…..follow ?? [eh]

In summary, the ‘obvious reasons’ you listed initially are the reasons…..there’s a reason why they are obvious.

One last thing…..I don’t know about your experiences, but I’m finding currently buying large industrial sites, my stiffest competition are always the owner operators, not the investors….and more specifically it’s usually te operator from next door who has a strategic reason to purchase the site next door and is therefore prepared to go higher to get it.