Leasing and on-demand warehousing are two popular options for businesses. But the latter model has gained considerable popularity of late.
And for a good reason.
Leasing a warehouse involves renting a space from a property owner directly. The lease contract is usually in terms of years.
On-demand warehousing, also known as flexible or shared warehousing, lets companies rent space short-term.
What is best among the two options depends on the nature and the circumstances surrounding individual businesses.
Why should you lease a warehouse?
Now, here is a decision you should make after researching thoroughly.
One of the most common mistakes many businesses make is to assume certain norms of doing things and follow the same without giving in much thought.
Leasing a warehouse is a rigid storage option for long-term requirements. It involves upfront capital expenses!
There are also specific legal responsibilities, such as checking the zoning laws and regulations in the area and whether it allows for warehouse operations.
It may come as a surprise, but very few scenarios actually demand leasing as a storage solution!
Let’s try to understand this better.
When you register a new company, specific situations call for leasing as a storage solution.
Case 1:
You are setting up a new business. You need an Ejari certificate issued by the government to register your company.
Case 2:
Your business requires a large amount of space, more than 5000SQ FT. There is a need for large machinery or equipment for your operations.
This could be the case if your company is into manufacturing, assembly, or workshop.
Leasing lets you customize the area as needed.
Case 3:
Your company follows a CapEx model.
There is a large space requirement and long-term plans.
The inventory is considered a long-term asset of more than one year. And you are ready to make a one-time investment in non-consumable assets, keeping in mind future growth.
Leasing gives the company complete control over the storage space.
Case 4:
You have a predictable business model.
Your product lines or location will not change in the foreseeable future. At any point, your warehouse has more than 80% occupancy rate.
It would help if you questioned your business.
Does it fall under any of these scenarios?
If not, then why use this mode of acquiring storage space when you have a leaner and more flexible alternative for storage requirements?
Leasing a warehouse involves a series of steps and many more miscellaneous costs other than the actual rent on paper.
You must come to an agreement on the duration of the contract along with the rent amount.
You have to agree on the payment schedule. Most payments are quarterly and have to be paid in advance.
There is an additional capital apart from what you agreed with the landlord. This includes a 15 to 30 % municipality fee, a 5% VAT, a 7-10% agent fee, and a 5% admin fee, among others.
You also have to consider the security deposit, which is refundable.
Apart from these, several other government formalities and approvals need to be taken care of.
The SIRA approval for a 5000 SQ FT warehouse would cost approximately AED 40k to AED 70k.
Drawbacks of Leasing a Warehouse
There are inevitable setbacks that a business needs to be aware of when considering to lease a warehouse.
The additional costs and the first quarterly rent must be done as a one-time payment at the beginning of the contract.
Leasing saddles the company with the maintenance cost of space if they have no use for it when business circumstances change.
Acquiring a warehouse space close to the market may not be possible or sometimes expensive.
Transportation and distribution of goods to market can add to the operations expenses.
Should I choose On-demand or Flexible Warehousing?
Why not? If flexible warehousing can offer a fair solution for all your storage woes?
If you can identify with any of these scenarios in your business, then flexible warehousing does have a solution for you!
Case 1:
You are starting a new venture and do not want to spend heavy capital on warehousing requirements.
Your business has fluctuating requirements of space for goods storage.
You only want to scale up on the space as your business grows and requirements increase.
There will also be times when you want to cut back on space.
Case 2:
Your products have different types of storage requirements, like a temperature-controlled environment - A/C or Non-A/C, or you need special warehouses for storing pharma goods or open yard space for bulk storage.
You want to avail storage space at a five-star facility for storing certain goods.
Check out the different types of warehouses available in Dubai.
Case 3:
Your business is looking for smaller storage facilities closer to the market instead of one large central warehouse.
Read about how distributed warehousing is now possible with On-Demand storage.
Case 4:
Your business already owns a warehouse. But many a time, you end up with surplus goods and no space to store them. If the storage issue is not taken care of, it could hinder the functioning of your warehouse.
Temporary storage spaces would be a great way to store these surplus goods.
Read more about managing your overflow inventory with flexible warehousing.
What are the advantages of flexible warehousing?
On-demand demand warehousing gives the business ample flexibility for renting a space in terms of time, location, and area. The warehouse operators take care of access controls, security, and other aspects of operations.
It is now possible to take up space closer to their area of operations. Such flexibility improves business resilience and saves costs.
You get access to the warehouse space almost instantly.
The total financial implications also make on-demand warehousing attractive for most companies. Flexible warehousing makes it possible to acquire storage service for as low as AED 350.
You can obtain storage space from 50 SQ FT or as low as a few pallets.
Flexible storage makes it possible to save on transportation costs and do your deliveries faster.
The pay-as-you-use model makes it easy to expand as well as discontinue the business just as quickly without long-term commitments.
Flexible warehousing gives businesses the convenience of plug-and-play but with certain limitations in controlling a few aspects of warehouse operations.
Leasing or On-Demand Warehousing?
On-demand warehousing is a new concept that allows businesses to grow and unlock new opportunities. As the name suggests, it is cost-effective and flexible in terms of space, location, and time.
You can now explore new markets without blowing up the budget.
Businesses can now consider On-Demand Warehousing over Leasing a warehouse unless their commercial operations explicitly demand so.
Get in touch with us if you have more questions!