Every quarter, a corporate client comes to us with the same fundamental question: should we lease this space, or should we buy it?
It sounds like a simple question. It almost never is.
The honest answer depends on five things — and most companies only look at two of them before signing the cheque. Below is the framework we walk every serious client through, in the order we walk them through it.
1. How long are you actually planning to be in this market?
This is the single most important question, and most corporates don’t answer it honestly.
If your real, board-level commitment to Sri Lanka is less than five years, you should lease. Full stop. The transaction costs of buying — stamp duty, registration, legal, agent, and the eventual exit cost — won’t be recovered in that timeframe.
If your commitment is 5–10 years, the answer becomes situational. You’re now into territory where buying can be cheaper than leasing in total cost terms, depending on the asset.
If your commitment is 10+ years, and especially if this is a strategic regional headquarter, buying or building should be on the table from the start.
2. What is the opportunity cost of the capital?
A simple test most CFOs already know but few apply rigorously: what return is your business currently generating on capital deployed inside the business?
If your core operating business earns, say, 18% on capital and your real estate purchase would yield an effective 7%, locking up cash in the building is — in pure capital allocation terms — a destructive decision. Leasing leaves the capital free to do its higher-return job.
If, on the other hand, your business is mature, throws off excess cash it cannot redeploy, and your alternative is sitting in cash, then real estate ownership becomes financially defensible — even at a 7–8% yield.
3. Is this asset operationally critical, or just operationally useful?
Some real estate is genuinely strategic — a manufacturing plant, a customised R&D campus, a flagship store, a regional HQ. For these, owning gives you control over downtime, modifications, branding, and security in a way leasing simply cannot match.
Most real estate, however, is not in this category. A standard floor of office space in a Grade-A building is useful, not strategic. Leasing it preserves optionality — and optionality is worth a lot in a market that’s still re-rating.
4. What does the actual financial model say?
This is where most corporate decisions go wrong. The “lease vs. buy” model has to capture, at minimum:
- All acquisition costs (price + stamp + registration + legal + diligence)
- All ownership operating costs (insurance, property tax, maintenance, capex reserves)
- The terminal disposal cost
- The opportunity cost of capital deployed
- The tax treatment of lease rent vs. ownership depreciation
- The scenario where your headcount grows 30% or shrinks 30%
When we build this model for clients in Colombo and the Western Province, the breakeven typically sits between year 7 and year 10. Anything less than that, leasing wins. Anything more, buying wins — if the location is right and if the asset is liquid enough to exit cleanly.
5. How liquid is the asset on the way out?
This is the question almost nobody asks at the buying stage, which is exactly why so many corporate-owned assets become problems at the selling stage.
Before you buy, ask: who, realistically, is the next buyer of this asset in 7–10 years? If the only credible buyer is another company that happens to need exactly your footprint in exactly your location, you have a liquidity problem masquerading as a real estate purchase.
The most liquid asset profiles in Sri Lanka right now:
- Grade-A office floors in central Colombo
- Logistics / warehousing assets near the port
- Mixed-use commercial-with-residential blocks in tier-1 locations
The least liquid:
- Highly bespoke single-tenant campuses in non-prime micro-markets
A simple decision rule
If we were forced to compress this entire framework into one line, it would be this:
Lease the optionality, buy only the strategy.
If a piece of real estate is genuinely strategic to your business — a flagship, a regional HQ, a manufacturing core — and you have a 10+ year horizon, buy it. Everything else, lease it, and keep your capital working in your operating business where it earns more.
Where GAR fits in
We sit on both sides of this question every week. We lease space to corporate occupiers, and we acquire and structure real estate purchases for the same kinds of organisations. That dual perspective means we’ll usually tell you the honest answer — even when the honest answer is “lease, don’t buy” or “buy, but not this one.”
If you’re weighing a lease-vs-buy decision in Sri Lanka right now, we’d be happy to walk you through the framework against your specific numbers. No obligation, and no marketing.
