How to Prepare Your Business to Lease Commercial Space
If you've never leased commercial space before, it can be quite a different process from renting that apartment you had in college.
Whether you're looking for office space, retail space, or a warehouse, leasing commercial space can be an intensive and daunting process - and many businesses make serious mistakes. However, if you’re prepared for it on the front end, you can make the process a lot smoother and increase your chances of landing that primo space.
In this article, we'll cover everything you need to know about preparing your business for leasing commercial space.
Understanding Your Needs
Prior to starting your search for commercial space to lease, you need to have a solid understanding of your business’s needs. Consider the type of business you have, the space you need to operate today, and how future growth could impact that. Factors that you should consider include:
Size: How much square footage do you need? Will you need a shorter-term lease because you plan on expanding in the near future?
Location: Where do you want to be located? If you don’t need walk-by traffic, consider leasing off the beaten path as you’ll save money on rent.
Accessibility: Does the space need to be accessible to customers or employees with disabilities? Some spaces may already be adapted, but others may require that you make those improvements.
Parking: How much parking do you need? Do you need enough of a parking lot for semi-trucks to be able to turn around?
Layout: What type of layout would work best for your business? Open floor plans are great, but consider noise, privacy, etc.
Amenities: What additional amenities do you require, such as a kitchen, conference room, or storage space? Do you want to be able to walk to nearby restaurants and bars?
Each of these items is important to flush out in the beginning so that you don’t waste your time looking at spaces that just won’t be ideal for your situation.
Check out our resources, including a free copy of Tyler’s best-selling book - Open for Business: The Insider’s Guide to Leasing Commercial Real Estate
Preparing Your Business Documents
When leasing commercial space, landlords will often want to know more about your business and its operations so that they fully understand what you’re going to be doing on their property. Preparing the following documents will help landlords get a better idea of who you are and what your business does.
Business Plan
Unless you have an established brand and business, a well-prepared business plan is an absolute must when leasing commercial space. This plan can help you secure financing from lenders and convince landlords that you're the ideal candidate for their space. Your business plan should include:
A description of your business and its goals
An analysis of the market and competition
Details about your products or services
Your marketing and sales strategy
Financial projections and cash flow analysis
Branding Package
A branding package showcases your business's branding and image, which is essential for leasing commercial space when you’re a startup. It typically includes:
A logo and brand colors
Business cards and stationery
Brochures or flyers
Website design
A strong branding package helps landlords understand your business's personality and image so that they can get a full picture of who you are.
Make sure that these two documents are as thorough as possible - after all, they’ll continue selling your business to the landlord long after that initial contact.
Finding the Right Space
After you’ve knocked out the upfront work of pulling your business plans and financials together, it's time to start looking for the right commercial space. Here are some steps to take:
Conduct a search: Start by searching online listings, driving through neighborhoods you’d like to be, or working with a commercial real estate agent.
Visit potential spaces: Visit the spaces you're interested in to get a feel for the layout, location, and amenities. I recommend not being overly excited about anything you see while on tour so that you can better negotiate terms later.
Read the lease: Take the time to sit down and review the lease terms carefully to ensure they meet your needs and are what you had discussed. I highly recommend bringing in an attorney at this stage to help.
Negotiate the lease: Don't be afraid to negotiate the lease terms with the landlord to ensure you get a fair deal. Unlike apartment complexes, leases for commercial real estate are highly negotiable.
Preparing for the Move
Moving day can be quite a headache, especially if you’re relocating or have a larger business with a lot of materials. Here are some steps you can take to plan ahead:
Plan the move: Create a detailed plan for moving your business to the new space, including packing, transportation, and unpacking.
Notify your customers and suppliers: Let your customers and suppliers know that you're moving and provide them with the new address. Take this as an opportunity for PR, if you can, by notifying your local newspapers and magazines.
Change your address: Update your business address with the appropriate parties, including the post office, utilities, and licensing agencies. Don’t forget your email signature, business cards, website, and Google My Business address.
Set up the space: Set up your new space with the furniture, equipment, and supplies you need to operate your business. It helps here to layout your equipment, offices, etc. with a floorplan of the space.
FAQs for Leasing Commercial Space
Here are five common FAQs that business owners usually have about leasing commercial real estate for the first time:
How are commercial leases structured?
There are three primary ways that commercial leases are structured:
Triple Net (NNN): the tenant is responsible for paying additional costs beyond the rent, such as property taxes, insurance, and maintenance
Modified Gross (MG): the landlord pays for some, but not all, of the additional costs beyond the rent, such as property taxes and insurance
Full-Service Gross (FSG): the landlord pays for all additional costs beyond the rent, including property taxes, insurance, maintenance, and utilities
How long is a typical commercial lease?
The length of a commercial lease can vary but is typically between three to ten years. Some landlords may offer shorter or longer lease terms depending on what kind of business you have, what their goals are with the property, and how much you’re asking in terms of free rent or other concessions.
What Other Costs should I expect when leasing commercial space?
In addition to your base (monthly) rent, you may need to budget for a security deposit, interior maintenance costs, and utilities. Depending on the lease structure, you could also be responsible for your pro-rata share of common area maintenance costs, property taxes, and building insurance.
Can I negotiate the lease terms?
Absolutely - most commercial lease terms are actually negotiable. You may be able to negotiate how much rent you pay, how long your lease is, your maintenance responsibilities, and other terms that could better suit your business's needs.
Do I need a real estate agent to lease commercial space?
While it's possible to find commercial space without a real estate agent, working with an experienced agent who can guide you through the process will make your entire experience better and more successful. The right agent can help you identify suitable properties, help negotiate your lease terms, and ensure that you get a fair deal.
As a commercial real estate investor, securing financing is a critical component of your journey to building a thriving portfolio. Among the various loan options available, DSCR (Debt Service Coverage Ratio) loans have emerged as a popular choice, particularly for investors seeking to finance investment properties or build a rental portfolio. However, understanding DSCR loan interest rates and how they are calculated is crucial for making informed decisions and maximizing your returns.