So you’ve decided to relocate your business or open a business… that’s exciting! I bet you’re wondering what the heck to do next…
Unlike renting an apartment (which we’ve all probably done), most people have zero experience in the world of commercial leasing. It can be VERY complex and requires a little more homework than when searching for the perfect bachelor pad. I’ve seen just about everything when it comes to office and retail leases, so I’m sharing some words of wisdom with you that I tell all my clients when they’re looking for a new space.
- Hire a Broker
They’re free! No, seriously. The best things in life are free – love, peace, happiness, and commercial brokers. Okay, that’s a bit of hyperbole, but one of the most common mistakes I see businesses make is NOT hiring a commercial real estate agent to work FOR them and their best interests. Many people think hiring a commercial broker means spending gobs of money, but in reality property owners pay the commercial real estate agent on both sides of the transaction in almost all cases. So, the question is, who wouldn’t want someone working for them and their business’s interests – especially when it’s F-R-E-E. If it’s free, it’s for me. As when hiring anyone, interview a couple people to find the best fit!
- Investigate
I don’t mean hire Magnum PI. I mean open your eyes to the entire building and focus on more than the space you’re considering leasing. Is the parking lot full of weeds, trash and/or potholes? Is the paint on the building peeling off? Do neighboring tenants take care of their space, are they loud, does their use fit the building or does it clash with your business? Leasing a commercial space often means a multi-year commitment, and the last thing a tenant wants to do is sign a lease and immediately regret it because the landlord neglects the premises and/or tenants next door cause issues.
- Know the Numbers
In commercial real estate, lease rates are almost always quoted on an annual per square foot (PSF) basis. For example, $16 PSF NNN (NNN=triple net; more on this below) would be a common lease rate to see. That means the space costs $16 per square foot per year. So, if a tenant leases 1,000 SF, the rent would be $16,000 for the year. Simply divide by 12 to get the monthly rent, which in this case is $1,333.33 per month.
- So What About Those Triple-Nets?
No, that’s not a fancy basketball move. Triple-net is a type of commercial lease rate, most often notated as “NNN”. The other most common lease rate is Full Service. Without boring you to tears, there are some complexities in these very different lease rates. The most important difference is that Full Service is an all-in rate, while NNN means that in addition to the base rent, the tenant has to pay an estimated proportionate share of the building’s operating expenses. In other words, each month the tenant pays an amount and at the end of the year, that amount will be trued-up against the actual expenses. The tenant may then owe more money or be entitled to a refund. The take-away here is that Full Service is more tenant friendly, and NNN is more landlord friendly. - Make an Offer
So you’ve hired a broker, investigated the premises, know the numbers and lease type – what’s next? In commercial real estate leasing, an LOI (or letter of intent) is most commonly used to make an offer to a property owner. The LOI is non-binding, and simply spells out the specific terms a tenant would agree to in order to lease the space. In most cases, there is room to negotiate the terms with the Landlord. After the LOI is agreed to, the next step is the lease.
- Lease Review
Hire a lawyer and not just any lawyer. As good as commercial brokers are, they are not lawyers, and can’t pretend to play one no matter how much you (or they) may want to. As mentioned, leases are often multi-year, and thousands, hundreds of thousands, or millions of dollars. A lease of any size should be reviewed by a competent business or real estate attorney!
This is just the tip of the iceberg – there are many more aspects to commercial leases. Which is why I urge you to find the right broker for YOU!
And of course, I’m always available to answer any questions you have… you know where to find me. 🙂
No matter what stage of life you’re in, P.J. Morgan Real Estate is here for you. We offer commercial sales, leasing, and property management; residential sales, leasing and property management; business brokerage and real estate auction services. We’re with you for life.
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Thank you for pointing out that you should make sure and open your eyes to the entire building and not just the space you wish to rent. This seems like something people should make sure and keep in mind when trying to find the best space for their commercial business. Hopefully, anyone needing a space for their business does their research and finds the best space possible. http://www.monetticonsultingandengineering.com/commercial-space-professional-consulting/
I love what you said about using an LOI when it comes to making an offer to the property owner. Leasing an office space is a great idea what you’re planning to run a startup. If I were to start a company, I would make a sincere effort to contact a real estate company that can guide me to the best properties. https://vistaatsouthbridge.com/
It was interesting how the article talked about hiring a broker because they are free and they work with the businesses best interests in mind. My brother works for a company that is thinking of purchasing a new building for their operation to move into. It might be beneficial for them to find someone who can to help them find a property to lease. https://netleasefinder.com
It’s really a nice and helpful piece of info. I’m happy that you shared this helpful information with us. Please keep us up to date like this. Thanks for sharing.
It’s good to know that you should focus on more than the space you’re considering leasing when looking at a potential building. My brother recently decided to move his company into another building, and he wants to make sure it will be a beneficial workspace. I will be sure to recommend he look into how the entire property looks so that he can see potential maintenance issues before signing a lease. https://www.winmarcorporation.net/
My sister would like to rent out her commercial space to start-up companies, which is why she has decided to start looking for a property manager that may handle the project. Well, I also agree with you that it would be smarter to hire a commercial broker too. Thank you for clarifying here the importance of beautifying its parking lot too by removing its weeds. https://kepropertymanagement.com
A commercial real estate lease is an agreement that allows a business to rent commercial property from a landlord. Process of identifying, negotiating, and signing a commercial lease is a long one.
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