The own v lease decision ‐ Myth and reality
Abstract
The own versus lease decision is a surprisingly controversial topic. Although the issues driving the decision appear straightforward, they are interpreted differently, leading corporations to make opposite decisions in similar circumstances. Overall, however, the author’s experience is that the current trend is away from ownership. In the slower‐moving decades of the past, corporations chose to own their real estate to keep control of their place of work. These buildings were often constructed specifically for their use and were as much image statements as places of work. Today, the pendulum of popular opinion has swung to the other extreme. In an era where asset metrics such as EVA (Economic Value Add) and ROA (Return on Assets) are in vogue, it is no longer acceptable for corporations to invest funds in capital‐intensive assets that are not central to the company’s business. Under the banner of flexibility and better asset utilisation, many companies have adopted a ‘lease only’ policy and refuse to own any building, even their corporate headquarters. Unfortunately, it’s not that simple. Although easy to follow and implement, simple rules such as ‘own everything’ or ‘lease everything’ don’t work. Each decision needs to be assessed against a number of criteria which determine the relative advantages of leasing or owning in a given situation. It is an environment in which many myths have emerged. The following paper outlines many of the issues involved in own v lease decisions and reviews some of these myths. By providing a framework for making the decision, it asserts that, as with most major business decisions, there is no getting away from the need for an intelligent analyst.
Keywords
Citation
Golan, M. (1999), "The own v lease decision ‐ Myth and reality", Journal of Corporate Real Estate, Vol. 1 No. 3, pp. 241-253. https://doi.org/10.1108/14630019910811042
Publisher
:MCB UP Ltd
Copyright © 1999, MCB UP Limited