Your Own Business Property: Nest Egg or Burden?

Company real estate refers to property used by a business for its operations. Many entrepreneurs view their own business premises as a nest egg for retirement. But is this always the case, or can the building sometimes be a burden? We asked Yves Huyghebaert, SME advisor at KBC.

Yves and his colleagues support entrepreneurs during key moments in their careers, such as when considering an acquisition or passing the business to the next generation. “We help them with all the fiscal and legal questions they face. In that regard, we're quite atypical bankers. We explore possible solutions for their specific situation and provide objective advice, which doesn’t always lead to a banking product.”

Company Real Estate Challenges

“We also advise entrepreneurs on company real estate. The average Fleming still has a strong inclination for owning property and often sees rent as a lost expense. Our local offices receive daily inquiries from entrepreneurs looking to invest in real estate. For more complex questions, we get involved. This involves acquiring a private residence, purchasing company real estate, or investing in property to rent out.”

“Those considering the latter often look at company real estate, such as buying an SME unit as an investment property. The current scarcity of such business premises certainly plays a role.”

Private or Incorporated Entity

Should you convert your sole proprietorship into a corporation when purchasing company real estate? The answer depends on the situation, says Yves. “Switching to a corporation purely for tax purposes isn’t always the best option. The purchase of real estate fundamentally changes your cost structure. If considering a real estate purchase, ensure a good legal structure, as transferring real estate purchased by a sole proprietorship to a corporation in a tax-friendly way isn’t straightforward.”

“We always look at the bigger picture and actively engage with the entrepreneur. Even if they come to us with a short-term question, we’ll always consider the long-term impact in our advice. What’s the impact of the investment on the business’s value and its future transferability?”

Company Real Estate as a Pension Fund

Many entrepreneurs worry about their pension. Is it valid to consider their company real estate as a form of pension saving? “Indeed, they sometimes view the property as a way to supplement their pension later on. The combination is even better: investing in a property you use now and can rent out after retirement.”

“We see clear differences across generations and sectors. Older entrepreneurs are often more actively engaged in this. Younger entrepreneurs think in phases and currently have different priorities. For a manufacturing company, owning a premises is indispensable. In service sectors or IT, real estate is much less of an issue. They can virtually operate from anywhere. Having a company building can even hinder activity transferability in some cases.”

Companies in a growth phase are more cautious about investing in real estate. Logically, says Yves. “Such investments imply a permanent cash outflow. And cash flow and liquidity position are crucial keys to growth.”

Difficult Sectors

“In retail and hospitality, there’s currently significant hesitancy to invest in real estate due to economic realities. More is rented than bought in these sectors. Low entry costs mean many startups, but they often lack the capital to purchase property. High turnover also means little appetite for major investments.”

“Additional problem: hospitality venues are often in old properties in city centers, which are usually expensive to purchase and maintain. Then there's the vacancy issue in city centers. It's becoming problematic for owners to rent at a standard yield. Those looking for investment property today are better off not buying a store or café.”

Deliberate Company Real Estate Purchase

If considering buying company real estate, always check if the investment is repayable from the business's revenue. “Real estate has a longer payback period than acquisition or machinery financing. You can only use the return once: either recovering goodwill or buying property.”

How the real estate is structured within the company is also crucial for potential transfers. “The property should not be a burden in a potential transfer. It's not always easy to realize the full property value in a future sale. Business revenue partially absorbs goodwill recovery, creating interdependent elements.”

“Therefore, sometimes it’s beneficial to separate real estate from the operational company, providing flexibility in a later transfer. This is useful if a buyer isn't interested in the real estate. In manufacturing, production capacity is necessary, so real estate usually remains legally within the company.”

SME Units

Deciding to buy property doesn't mean you’ll immediately find one. Yves notices a significant shortage of accessible business real estate. “It's what entrepreneurs worry about. They simply can’t find suitable property. Skilled workers, for instance, prefer an SME unit with a surface area of around 300m2. This leads to a rush on every new SME park offering such premises and increases the price per square meter.”

“Many entrepreneurs today want to separate work from private life. They no longer wish to operate from a garage or garden shed as before. This ties business activities to a residence, complicating growth or transfers, which increases pressure on the few available properties.”

“Expanding the search area is an option. Go 10 kilometers further from your current location or look across the language border. There is often more and cheaper space available. Wallonia also has more industrial zones for activities that struggle to find space in densely populated Flanders. However, the location must still be accessible for employees.”

Large Company Real Estate

More significant budgets are needed for business real estate on industrial and craft zones. Even there, waiting lists exist, says Yves. “This is due to stricter regulations for company locations. Operating permits at historical sites are expiring, requiring relocation to properly zoned areas.”

“What doesn’t help: intercommunal zones primarily want to accommodate the entrepreneurs themselves, being reluctant toward investors converting a property into multiple SME units. This makes repurposing older properties difficult, though initiatives to develop smaller units exist.”

Value of Company Real Estate

How is a business property’s value determined? Yves mentions key factors. “First, location and access. Is there easy flow of raw materials and finished products? Is it easily accessible to personnel? Also, is the building future-proof? Does it meet modern energy and environmental standards? Company buildings with asbestos roofs, for example, require extensive remediation and renovation.”

“The degree to which a building is versatile or modular impacts value. Food processing buildings score poorly there. Due to specific wall and floor finishes, such a property is only usable for sector peers. Business properties that struggle to sell today are exactly those monofunctional buildings. They're hard to renovate. Small retail units in old city-center buildings also don’t perform well.”

Green Future

What about the sustainability of our company real estate? “Sustainability of business buildings will become increasingly important. With the Green Deal, Europe aims to reduce CO2 emissions by 55% by 2030 compared to 1990 levels. Buildings are key in Europe’s climate policy. Thus, old business buildings need to be renovated faster because three-quarters of European buildings don’t currently meet energy standards.”

“Apart from regulations, there’s societal pressure from stakeholders, including banks. When KBC funds a building, we look at its sustainability. For old buildings, investors must present a renovation or remediation plan, immediately integrated into cash flow impact assessments. We don’t yet have an exclusion policy but apply stricter criteria for properties intended for external rental than those for personal use, both for financing duration and equity contribution.”

Well-Deserved Retirement

With retirement approaching, an entrepreneur should review all options, legally and fiscally. “The entrepreneur should understand that the company doesn’t retire. If the company owns the real estate, renting out has significant financial and tax implications. Rental income is first taxed within the company. A dividend payout then incurs withholding tax. The property in the company can thus be a barrier.”

“Through legal rights, we can link private wealth to the company. But legal rights are complex and effective only if used correctly. Each situation differs, so we collaborate closely with the customer's accountant.”

“Both usufruct and building rights are commonly used. The bare ownership can be acquired privately, with the company having usufruct until the managing director's retirement, then owning the buildings. Later, you become a 100% full owner privately, able to rent or sell the property freely, which is a win-win. Fiscal optimization in the company short-term and a nest egg in private assets long-term.”

Buying or Selling Company Real Estate?

On UNIZO Overnamemarkt.be, you might find the right match if you’re looking to buy or rent company real estate or have real estate to offer. Visit www.overnamemarkt.be, UNIZO’s online platform where supply and demand for SME properties and real estate meet.

Vind de juiste match

KBC’s SME advisors can also guide you knowledgeably in acquiring real estate. They work with you to find the best solution for your project. They stand out by joining your thought process.

As an entrepreneur with a real estate dream, you often have a specific property and approach in mind. Naturally, you want to know your monthly costs. At KBC, they frame your query more broadly, sometimes stepping back with targeted questions. Should you invest in the purchase? Should you invest in that way? And should you invest in that specific property?

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