Finding a space you can lease for your business is no walk in the park. The commercial real estate market is very different from the residential one and it can quickly turn into an overwhelming experience.
Nevertheless, leasing a commercial office space is one of the largest expenses incurred by new and expanding businesses, so it is important to do your due diligence. Here are some important things to think about when selecting a new space for your business.
Give yourself plenty of time.
Start your search for your next space well before you need to move. The more time you have, the more leverage you’ll have during negotiations.
Start with the basics.
Make a list of all the things that are important for you when it comes to a new space. What is your budget? What are your location preferences? Do you need to be near suppliers, customers or transportation hubs? How much square footage do you need? Do you have specific features you need, such as private offices, meeting spaces, a showroom, a warehouse etc. ?
Use this list of criteria to shop for a commercial real estate broker. This will help ensure the broker you end up with has the experience needed for your preferences.
Find a broker.
The commercial real estate market is much less standardized than the residential market. Things that seem as simple as finding the spaces that are on the market are much more difficult in the commercial market. There are also many nuances involved – such as zoning restrictions – that an experienced broker can help you navigate.
If you’re still hesitant to work with a broker, consider that in commercial transactions the landlord is typically the one who pays the broker’s commission. In other words, there is really no reason not to work with a broker.
Identify potential commercial spaces.
Work with your broker to find at least two or three rental properties that would work for your business. Only then should your broker start negotiating lease terms on your top pick. This will give you the freedom to walk away from negotiations without having to worry about not having additional options.
Negotiate a lease that meets your needs.
Congratulations. You’ve found a property that’s right for you. Before you sign your lease make sure its terms meet your needs. Can you afford the lease? Is the length of the lease ideal for your business goals? If you plan to significantly grow your business in the next five years, signing a 10-year lease might not be the best move. In that case, a short-term lease with renewal options might be safer.
Also think about the physical space. If you plan to make modifications to the existing space – such as adding workspaces, creating meeting rooms or rewiring the building – make sure you (or the landlords) will be able to make the necessary changes.
There are other important things to consider as well. This includes specifications on signs and where to put them, who will maintain and repair the property, if and how the lease may be terminated. Another thing to think about is making sure the lease prevents your landlord from leasing space to a competitor.
Understand your additional expenses.
In addition to your monthly lease payment, determine what other expenses you’ll have. Commercial real estate landlords often incorporate extra expenses into the lease such as maintenance fees, upkeep for shared facilities or utilities. These charges are usually the responsibility of the tenant, so find out how these are measured. Ask to see these “hidden fees” and policies as well as examples of costs that are typically incurred by tenants.
If you have questions about renting commercial space, please don’t hesitate to reach out to your local banker at MidWestOne. We’re happy to help!