Commercial real estate leasing: Part I
This is the first of a two-part series on leasing commercial real estate for your small business.
In most markets, one of the sectors that a small business can get a good deal on these days is commercial office and retail space. Whether you need more room or a better location, now is probably a good time to think about finding and negotiating for those new business digs.
But just in case you’re a little rusty on where to start the process, let’s focus on the initial steps of commercial real estate leasing fundamentals that will help you find and compare leased space that works for you.
1. Don’t stop looking until you find at least two or three places that work. The extra shoe leather will pay negotiating dividends later.
2. Don’t sign any lease until you know the entire expense picture, including maintenance, which we’ll cover next time.
3. Avoid emotional attachment until after you’ve negotiated lease terms you can live with. At this point, the only emotion that should enter into your decision is whether customers will get excited about the location. Love is for lovers – this is business.
4. Ask for a pro forma copy of the lease as soon as possible and read it. Commercial leases are like belly buttons - each one is different.
5. Create a comparables analysis in an electronic spreadsheet that allows you to compare the details of prospective properties. The basics include: leased square footage, unit lease price, incremental expenses (including maintenance), lease term required (how many years), plus pros-and-cons notes about each property. The notes will come in handy later if you need a tie-breaker when you’re making the final decision.
Since every leased space is different in size and price, here is a handy rule of thumb to help you start the elimination process. Ask the agent or landlord for the unit lease price – $8, $14, etc. – which is the price per square foot of the space per year. Multiply those two numbers and then divide the product by 12 to get the monthly base rent. Use this only as a quick tool to compare properties of different size and unit price.
Taking these numbers and your preferences into account, by now you should be able to get your list of prospective properties down to a manageable list.
In the next column we’ll wrap-up this project with the rest of the financial analysis and lease details, including types of commercial leases.
Write this on a rock … Now is a good time to look for a good deal on commercial space, if you know how.
Jim Blasingame is creator and host of the Small Business Advocate Show. Copyright 2011, author retains ownership. All Rights Reserved.
