In some cities with sharply rising rates for commercial leases, smaller businesses—including accounting firms—are opting to buy their offices instead of renting, Bloomberg reported. In cities such as Austin, Houston, Dallas, and Nashville, developers have started selling office “condos” to small companies, believing that high lease prices and inflation may make the idea of owning small office spaces more attractive. 

Bloomberg interviewed Meg Epstein, the CEO of CA South, which developed an office park in Franklin, Tenn., just outside of Nashville, who said that buying an office condo is “kind of a no-brainer” for clients, particularly consultancies, accounting firms, or medical support offices. “You’re investing in a real asset and hedging against inflation, and you’re paying less.” 

While office condos achieved some popularity in the early 2000s, they had gone out of favor and have only recently begun to creep back up. In the metro Nashville area, roughly 5 percent of commercial real estate is currently sold as condos, according to Byran Fort, a vice president at CBRE who is brokering sales for the Franklin project. “It is a small niche subset of office,” he said. 

In addition to rising rents and inflation, another reason for this trend is the new accounting standard for leases issued by the Financial Accounting Standards Board (FASB) in 2016, which is now in effect for most business entities. The new standards mean that  publicly traded companies must enter their entire lease obligations on their balance sheets, instead of just one year. Given that requirement, a long-term asset might look better to shareholders than a 10-year lease liability of the same price.  

Bloomberg reported that buying an office condo is a good option for companies that have implemented a “hub and spoke” model, which allows employees to work remotely part-time and to travel to ancillary offices in suburbs closer to their homes rather than to large offices in major cities. 

Although the mortgage on an office condo is an expense not faced by companies that rent, Bloomberg noted some of the advantages. For example, owners can remodel their spaces without any restrictions from a landlord.