Starting your own business is a complicated and often stressful process. There is so much to consider. The least of which is not the location of your new venture. As the old saying goes, location, location, location. However, the commercial leasing process can be intimidating for new business owners. So, it shouldn’t come as any surprise that one of the questions we are often asked is How to Lease Commercial Property.
How to Lease Commercial Property
Purchase vs. Lease Comparison
Before even looking at commercial properties, you should think long and hard about whether you want to lease a space or purchase your own building. “There are occasions when purchasing commercial real estate is advantageous,” explains Tom Thunstrom, Fit Small Business. These include:
- Building equity
- Increased cash flow
- Tax breaks
However, property ownership also comes with certain risks. So, it’s important to look at every angle and determine what makes the most sense for you both now and in the future. Coming to the right decision takes time, market research, and business planning.
Decide What You Want
Whether you decide to lease or purchase, the next step is to determine exactly what you want and need from a commercial space. This will help narrow your search. To help you create this list, try answering the following questions.
- Where is my target demographic located?
- Will my target demographic travel to the location you’re considering?
- Where is my competition located?
- What is my maximum budget?
- How much space do I need?
- How much parking do I need?
- Do I have any specific zoning requirements?
Understand the Types of Leases
“In Maryland, landlords will express their rent as an annualized rate and then they put an acronym on the end (NNN, MG, or FS),” explains Charles Peacock, United Development Realty Founder and CEO. “That acronym will tell us whether or not the expenses for operating the building is also included in that rate.”
- With a Full Service Lease (FS), the landlord pays the expenses associated with the property, including property taxes and insurance, repairs and maintenance, and utilities and janitorial services.
- With a Triple Net Lease (NNN), the tenant pays the pro-rata share of property taxes, insurance, and common area maintenance (CAMS).
- With a Modified Gross Lease (MG), the landlord and tenant each pay a share of the expenses. However, the rate is fixed, so there are no hidden expenses.
“It’s not so important how your landlord expresses the rent as it is that you know your all-in number,” explains Peacock. “So, you’re going to want to work with your broker to make sure you understand your total cost on each space you’re looking at. That way you can make an informed decision.”
Hire a Commercial Tenant Rep
Every business, small or large, in every industry, can benefit from an experienced tenant representative (tenant rep). While landlords have a listing agent or landlord rep acting in their best interest, a tenant rep is a type of commercial real estate brokerage where the agent is focused on your needs alone, as the tenant.
It’s not mandatory that a tenant use a broker. However, an experienced broker can help you find available spaces to look at, analyze your lease, and help you negotiate a favorable deal. Tenant reps have access to up-to-date market data, databases, and tools that track industry trends, vacancy rates, and comparable properties. And in most cases, hiring a broker won’t cost you anything.
Almost every lease deal has a paid commission built into it, funded by rental dollars. So, when you don’t use a broker, you aren’t saving any money. In many cases, you could actually be costing yourself more money by hurting your negotiating power.
“As a result, it’s a good idea to engage a tenant broker and have them help you find suitable locations to lease,” says Thunstrom.
Start Looking at Properties
Next, your broker will begin to show you spaces. Once you’ve identified your top choices, your tenant rep can help you analyze the pros and cons of each property. Selecting the right location goes beyond the physical address of the building. Your location within the building or retail center is just as important. Is there ample parking for your business needs? Who is beside you, above you, or below you? Are your neighbors noisy? Will their business negatively affect yours? Is the area being redeveloped? How will construction affect the space? Are there any zoning laws that could hinder your business?
While it is impossible to foresee every possible issue, an experienced commercial real estate consultant is a good start to uncovering many of these potential issues.
Lease negotiation can be a complicated process with serious ramifications for your business both now and in the future. Your broker will analyze the terms and help negotiate with the landlord rep to ensure you don’t end up paying above the current real estate market. As we mentioned, your tenant rep has access to up-to-date market data, databases, and tools that track industry trends, vacancy rates, and comparable properties. This industry knowledge is critical when it comes time to negotiate.
Want to Learn How to Lease Commercial Property? Tenant Representation with United Development Realty is the Answer!
If you’re still trying to decipher how to lease commercial property, you need United Development Realty on your side. We provide Commercial Tenant Representation throughout Maryland. We will help you find, negotiate, and lease the commercial space that is right for your business. We begin this process by listening to your vision, your objectives, and your goals. Then, once we fully understand your business and its unique needs, we can assist you through a tailored package of services.
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At United Development Realty, we immerse ourselves in real estate not just because we love it, but because it is good for our clients. Please call our office (locations in Bethesda 240-221-1976 and Fells Point 410-522-1632) to get in touch with an experienced commercial tenant rep today.