Whether you’re planning to expand your existing business space or transitioning out of a home-based business, the decision to lease commercial real estate comes with risks. Entrepreneurs, retailers, strip mall owners, and shopping center owners should thus take the time to plan for their business’s needs. This should help them avoid a number of common pitfalls. This commercial leasing guide will take you through the steps you need to take through the process:
Determine Your Business Needs
Keep in mind that there are numerous commercial properties available to accommodate different types of businesses. Therefore, determining your needs based on the type of business you own should give you a decent start and help you set your property parameters.
Having pre-determined property parameters helps you limit your search to options that are best suited for your business. Some examples of parameters you want to set include you’re your desired property size, accessibility, property type and zoning, your maximum budget, and ideal customer.
Hire a Tenant Broker
Brokers facilitate commercial real estate leases, and the type of broker you’ll want to find is a tenant broker, a broker who represents tenants. It’s important to note here that tenant brokers earn a percentage of the commission paid by the landlord, so they may not act in the best interest of the tenant. Nevertheless, they will help you search for a suitable space for your business, provide access to financing options, possess knowledge of accurate market pricing and market dynamics, and negotiate on your behalf.
Choose the Right Type of Commercial Lease
There are 3 different types of commercial or retail leases available, including a net lease, full-service lease, and modified gross lease. The full service lease is by far the best lease type for commercial tenants and is most common for office buildings. In this case, the property owner pays for all the expenses, including property insurance and taxes, utilities, repair and maintenance and janitorial services. Everything is included in the rent.
In the case of a net lease, the rent is lower than what you’d expect from a full service lease, but you will be responsible for paying monthly costs like property taxes and insurance, common area maintenance and more.
A modified gross forms a middle ground between a full-service lease and a net lease. In this case, you might be required to pay for property insurance, taxes and common area maintenance but as a flat-rate amount along with the rent. Also, janitorial services and utilities are paid for by the landlord.
Your decision to choose the type of commercial lease will depend on your cash flow position and various other factors.