As a business owner, there may be several reasons why you're considering a move into a new commercial space. Your current lease may be ending, your business may be growing or downsizing and more or less space is needed, or perhaps the business has evolved and operates differently than it did five or ten years ago.
Whatever the reason for your move, there are several things to consider and a process to follow to find a commerical space that best suits your business and lease commercial real estate. In this Part 1, let's discuss how to set search parameters and connect with a professional that can help you find a space. In Part 2, we'll get into the actual steps of the lease process.
Match the Space to Your Business
The first step when considering leasing commercial space for your business is to have a clear understanding of your needs and how your business operates. Is it office, industrial or retail-based?
Can you operate from an office or do you require an industrial space with higher ceilings, loading docks, or drive-in doors?
Do you operate a retail business that relies on customer walk-in and needs visibility? Then narrow your search to retail locations that can be seen from the street. Does that retail storefront need to be on the first floor or would a second floor space with an elevator and an exterior sign provide enough access and visibility from the street?
Do you operate an online shop and ship product? Then you may be able to work from an industrial garage-type facility.
Do you work from an office with no customer walk-in traffic? Then a quiet upper floor office may suit your needs.
Match your business to the space from which you will operate.
Determine How Much Space You Need
Understanding the amount of space you need from which to operate both today and future years down the road should be taken into account prior to searching for new space.
Begin by measuring the square footage of the your current space. Do you need more or less space than you have now? Determine a reasonable range for your search parameters (i.e. 1,000-2,500 sf; 5,000-10,000sf; 20,000-50,000 sf).
Set a Budget
What dollar amount can you afford to pay toward rent? In general, businesses operate under the 30-30-30 rule. While this amount is not set in stone and can vary depending on the type of business, it's a good starting point for new businesses that don't yet have a few years worth of past, detailed expenditures to which they can refer.
Assume 30% of your income will be spent on Cost-of-Goods (product to make an end-product and resell); 30% will be spent on Overhead (rent, utilities, payroll, taxes, etc.); and, in an ideal world, 30% will be set aside as profit.
From there determine your overhead costs and how much of that 30% can be used for rent (perhaps a range of 5 to 10% of projected income).
Map a Search Area
Make a list of cities/towns to focus your search for commercial space. Determining where you would like your business to be located and where it can be located are not always the same.
You may like to open a micro-brewery, but town X doesn't have any available liquor licenses. Or, you may like to lease a 20,000 square foot warehouse in town X because it's close to your home and a major highway, but if that town is made up of 90% residential properties, the likelihood of finding a warehouse to lease there is pretty slim.
What type of labor force does your business require? Whether it is a skilled work force or otherwise, is there availability within a reasonable distance from your business and a satisfactory supply of available employees to meet the needs of your business?
There are several factors to consider when determining a search area. Location may be determined by your customer service area, how many other similar businesses are already existing in the area, the type and size of the commerical space you need, or what use a city/town will allow.
Contact a Commercial Real Estate Broker
Now that you know the type of space you need, the amount space, your budget, and your search area, you can now begin to search. You could do an initial online search by following the search guidelines we've outlined in a previous article titled, How to Search for Office, Industrial, or Retail Space; however, we recommend you contact a commercial real estate broker or agent at this point.
A commercial broker or agent is an expert in the field of real estate. Unlike a residential broker who may understand the housing market, a commercial broker has knowledge and expertise in the commerical property market. The two can be very different.
Just as a tax accountant stays up-to-date on current tax laws and has the latest software to process returns, commerical real estate brokers not only monitor the current market, they usually pay for and contribute to database search tools (dedicated to commercial real estate) that other types of brokers do not.
Commercial real estate brokers can best guide prospective tenants toward properties that best fit their business. Brokers are hired by the building owners and, in most instances, are paid a broker fee by those owners.
What does this mean for business owners searching for space to lease? It means in most instances, they have the benefit of working with a professional, experienced commercial real estate broker who knows the market at no cost to the business owner and who are best equipped, educated, and have the market knowledge to fulfill the needs of the business owner.
Continue on to Part 2, where we discuss understanding the terms, presenting an offer, the proposal, and the lease.
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