Corporate real estate directors face the constant challenge of balancing opportunities with the operational and financial goals of their companies. While certain firms have stayed the course and continued with an ownership strategy, leasing remains the transaction of choice for corporate space users. And with a glut of net-leased assets for sale, demand by prospective buyers is also picking up steam.

“The buy-lease decision boils down to the cost of capital and how you see your capital stack,” says Jonathan Hipp, president and CEO of Calkain Cos. Inc. in Reston, VA. “Are you better off putting that money into the real estate or your business?” He adds that most corporate space users opt to funnel funds into their core business, which ideally is generating higher returns than asset ownership.

Whether this is the right strategy depends on the weighted average cost of capital, a calculation that blends the cost of equity—generally 10% or higher—and the cost of debt. As a result, companies that are growing organically or through acquisitions, and those with lower investment grade or sub-investment grade debt ratings, often lean toward leasing. So do higher-rated companies with liquidity that have better investment opportunities available within their core operations—think retailers who reserve their rolls for inventory.

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