4 min read
QUICK SUMMARY
- THE MARKET: Perth industrial vacancy is 2.2 per cent, with limited land and new supply putting pressure on tenants.
- THE RENT: A 675 square metre Welshpool unit at $110,000 a year costs about $769,000 over five years if rent and outgoings rise by 4 per cent annually.
- THE BUY: A $2,025,000 purchase at $3,000 per square metre may require about $515,000 in upfront cash, including the deposit, transfer duty and professional costs.
- THE GAP: On cash flow alone, year one ownership and renting are close to level, but once the opportunity cost of the capital is included, renting is ahead by roughly $25,000.
- THE CATCH: Interest-only repayments do not last forever, property values can fall and ownership brings costs that rent does not.
- THE DECISION: The answer depends on tenure, renewal rent, business returns and your ability to handle higher repayments.
Why This Question Is Being Asked Now
Perth’s industrial market is not giving tenants much negotiating room. Vacancy is around 2.2 per cent, or about 1.7 per cent when sublease availability is excluded, making it the tightest industrial market in Australia.
Prime net rents are averaging about $175 per square metre, with the East submarket closer to $185. Rents grew 5.6 per cent over the year to June 2026, while new warehouse supply is at its lowest level since 2018.
Land is scarce too. Only about 420 hectares of active industrial land supply has been identified across Perth, with values for one to five hectare lots averaging about $575 per square metre and reaching $675 per square metre in the East.
For a business in Welshpool or Kewdale, this is where the conversation becomes practical. A lease renewal with a higher rent, fewer alternative properties and a longer relocation process can make ownership look attractive. But attractive is not the same as affordable.
The Rent Side Of The Ledger
Take a 675 square metre office and warehouse unit in Welshpool. A recent leasing example was advertised at $110,000 a year, plus GST and outgoings of about $32,082.
That equates to base rent of roughly $163 per square metre. It sits below the broader $175 per square metre prime benchmark, but the property’s age, office ratio, clearance height, yard access, incentives and lease terms all matter.
Now assume the base rent and outgoings increase by 4 per cent each year.
- Year one base rent: $110,000
- Year two base rent: $114,400
- Year three base rent: $118,976
- Year four base rent: $123,735
- Year five base rent: $128,684
The five-year base rent is approximately $596,000. Starting with outgoings of about $32,000 and applying the same annual growth produces roughly $173,000 over five years.
That gives a total five-year cash cost of approximately $769,000. At the end of the lease, the tenant has paid for occupation and flexibility, but owns no part of the building.
That is not necessarily a criticism of renting. Rent is a known operating cost, and it can be the right price for flexibility. The important point is to model the escalation rather than treating the first year’s rent as the long-term cost.
The Buy Side Of The Ledger
Now use the same 675 square metre property as an illustrative purchase example at $3,000 per square metre, or $2,025,000.
Assume the lender accepts an 80 per cent loan to value ratio based on its own valuation:
- Purchase price: $2,025,000
- Twenty per cent contribution: $405,000
- Loan: $1,620,000
- WA transfer duty: approximately $95,400
- Legal, valuation and due diligence: approximately $15,000
- Total upfront cash: approximately $515,400
WA transfer duty is calculated on the GST-inclusive price where the sale is a taxable supply. Your own duty figure may differ depending on the contract, GST treatment, valuation and transaction structure, so confirm it before relying on the estimate.
Assume the $1,620,000 loan is interest-only at an indicative rate of 6.75 per cent. That produces interest of about $109,350 a year, or approximately $2,103 a week.
Add outgoings of about $32,000 and the year one cash cost of ownership is approximately $141,350, before any principal repayment.
This is not a quote, promise or forecast. It is an illustration using stated assumptions, and it is not financial advice.
Why The Gap Has Closed
On cash flow alone, the two options are now almost level. Year one rent and outgoings are about $142,000. Year one interest and outgoings for the owner are about $141,350. That is a difference of roughly $650 in favour of owning, before any capital cost is considered.
But buying requires about $515,400 upfront. That money has a cost, even if it does not appear on the loan statement. At an illustrative five per cent return, the opportunity cost of committing $515,400 is about $25,770 a year. On that basis, renting is ahead by roughly $25,000 in year one once the full economic cost of the capital is included.
The business also needs to account for repairs, maintenance, insurance, compliance work and any costs not covered by the stated outgoings. The tenant may face make-good obligations, fit-out costs and lease review increases instead.
Interest-only lending is another important qualification. It can improve early cash flow, but it does not reduce the loan balance. When principal and interest repayments begin, the annual ownership cost rises materially.
You should model both structures. The relevant question is not simply whether ownership is cheaper in year one. It is whether your business can comfortably handle the repayment structure over the period you expect to occupy the property.
If the asset grew by four per cent a year, a $2,025,000 property would be worth approximately $2,464,000 after five years, before selling costs and tax. That potential equity, roughly $439,000, is the central financial attraction of ownership, but it is not guaranteed.
Renting keeps approximately $515,400 inside the business. If that capital funds stock, staff, equipment, acquisitions or expansion at a return above the property’s net benefit, renting may be the stronger strategic decision.
Risks And Transparency
Neither option is risk-free.
Buying concentrates capital in one property and can make it harder to relocate, expand or respond to a downturn. A valuation decline could also reduce equity and make refinancing more difficult.
Renting exposes the business to lease reviews, renewal risk, make-good obligations and the possibility that a suitable replacement property is not available when needed. In a tight market, moving may also mean accepting a less efficient site or paying a higher rent.
The numbers above do not include tax deductions, GST recovery, depreciation, capital gains tax, selling costs or changes in outgoings. Those items need to be assessed with your accountant and solicitor.
The objective is not to make ownership look clever or renting look wasteful. It is to compare the actual cost of each option against your goals, cash flow and risk appetite.
What The Bank Looks At
Owner-occupier industrial lending typically caps at around 80 per cent LVR, although specialised properties, weaker financials or conservative valuations may require a larger contribution.
The valuation is the lender’s valuation, not necessarily the contract price. If the lender values the property below $2,025,000, the required cash contribution may increase.
Commercial rates are priced individually according to risk, LVR, documentation, property quality and borrower strength. Indicative market ranges can sit around 6.5 to 9.5 per cent for bank products, with non-bank and specialist lenders commonly ranging from 7.5 to 14 per cent. Prime owner-occupied transactions may start nearer 6 to 6.25 per cent.
The RBA cash rate is currently 4.60 per cent following the 25 basis point increase on 29 September 2026. That is a useful backdrop, but your actual rate will depend on the full lending profile.
Business owners should compare the whole structure, not just the headline rate. The same applies where the loan may later support expansion or a refinance.
https://baselinefin.com.au/commercial-property-loans/
Four Numbers That Decide It For You
NUMBER 1: HOW LONG YOU WILL ACTUALLY STAY
If you may move within five years, renting will often preserve more flexibility. If you expect to operate from the same site for ten years or longer, ownership has more time to justify the upfront costs and transaction friction.
Keep the location decision separate from the ownership decision. You may want to stay in Welshpool because of customers, staff or freight access, but still decide that leasing is better than buying.
NUMBER 2: YOUR RENT AT RENEWAL
Get the likely renewal figure in writing before modelling anything. A current rent of $110,000 is useful, but the next lease review, incentive structure, outgoings and make-good terms are what affect the real decision.
NUMBER 3: THE CAPITAL YOU WOULD COMMIT
Calculate the deposit, duty, professional costs and any fit-out or repairs. Then ask what that capital could earn inside the business, including whether it could reduce more expensive debt or fund productive growth.
NUMBER 4: YOUR SERVICEABILITY AT 4.85 PER CENT
Do not test the decision only at today’s rate. Model serviceability at 4.85 per cent, because some economists expect the cash rate could reach that level.
A property that works at 6.75 per cent interest-only may look very different once rates rise, principal repayments begin or trading conditions soften.
When Renting Is The Better Answer
Renting can be the better answer when the business is growing quickly or is not yet certain about its long-term footprint.
It may also win when your capital produces a higher return in operations, when you need flexibility to move closer to a major client or port, or when ownership would leave too little working capital for wages, stock and tax.
A lease can be especially useful while the business tests a new market. Paying for flexibility is not wasteful if flexibility has genuine strategic value.
https://baselinefin.com.au/working-capital/
When Buying Wins
Buying can make sense when the business has stable cash flow, expects to stay in one location for the long term and is paying a significant amount in rent without needing the flexibility that leasing provides.
It can convert part of an operating cost into ownership, create potential equity and give the business more control over its premises. It may also reduce exposure to future lease renewals, although property ownership introduces its own risks and responsibilities.
A review by the Small Business and Family Enterprise Ombudsman found that about 60 per cent of small businesses in Australia are tenants, with rent often ranking as their second-biggest cost. That underscores why the decision matters, but it does not make buying automatically right for every business.
TERMS TO KNOW
- Net rent: The rent paid for the premises before outgoings, GST and other recoverable costs.
- Outgoings: Property expenses such as council rates, insurance, maintenance and management costs that may be passed to the tenant.
- Loan to value ratio: The loan amount expressed as a percentage of the lender’s accepted property value.
- Transfer duty: A state government tax payable on many property transactions. In WA, GST may be included in the dutiable value.
- Interest only period: A period when loan repayments cover interest but do not reduce the principal balance.
THE BASELINE DIFFERENCE
Baseline Finance provides jargon-free advice, transparent lender comparisons and one point of contact throughout the funding process.
Our Strategic Funding Plan creates a benchmarked roadmap around your goals, borrowing position and risk appetite, and can be delivered within 7 days.
The aim is not to push you towards buying or renting. It is to show what each option costs, what can go wrong and which structure best supports the business you are building.
CONTACT BASELINE FINANCE
Phone: 08 6108 3925
