When running a business one of the key things to think about for long term survival is your bottom line. If you’ve spent any time evaluating a profit and loss report one of the biggest expenses is generally space rental.
I’ve spent years in the commercial real estate industry and today I’m sharing with you the biggest pieces of information that I wish business owners knew before entering into a lease for a commercial space.
Leasing commercial real estate is a process
Entering into the commercial real estate realm is a process. Keep these 5 key steps in mind before beginning the process.
Planning phase
Understand where you are in the business cycle and how far in advance you can reasonably predict your space needs. This is usually done internally or with the assistance of your tenant representation agent’s team including a space planner.
Site Selection
requires around two to three weeks of research as your tenant representative compiles all the available and upcoming spaces that could work for your needs. Once you’ve had a chance to review the options and selected a short list of potential matches, your tenant rep schedules property visits where your team can get a feel for the property, and surrounding area.
Negotiation
Your top two to three choices must be negotiated with simultaneously to achieve the best economic package. This can take anywhere from 1 to 3 months as the six financial components of the lease are negotiated across various rounds of offers. During this time an architectural drawing (space plan) is completed and agreed upon.
Documentation
Once your business selects a location and signs a letter of intent, the landlord’s attorney must create a preliminary draft of the lease (1 – 2 weeks) which must then be reviewed and often altered. Alterations to the language in the lease are negotiated between the tenant’s attorney and the landlord’s attorney, which can take two to four weeks. During this time the tenant’s financials are reviewed by the landlord, and any concerns with the tenant’s financial health are discussed.
Tenant Build out
Construction drawings are made from the agreed upon space plan, then sent through the city planning department who issues permits. If the tenant is selecting contractors and controlling the build-out (strongly recommended) their team will create a construction time-line for completion. Depending upon size of the space and the degree of work to be completed the construction time-line could be as long as three months.
Landlord’s are in the business of making money through renting space
Whether you’re a new tenant deciding to lease space or an existing tenant who enjoys a good relationship with your landlord or property manager, do not negotiate your facility lease directly without representation.
This isn’t buying a car, landlords are in the business of real estate and have resources and information you don’t. Your company’s 2nd or 3rd largest expense is facility spend, and negotiating a multi-year facility contract without examining your options or knowledge of the marketplace puts your business at a disadvantage.
I spent five years as a property manager for large, national property ownership groups as well as small local investors and one thing they share in common is hoping they can capture your tenancy at the highest possible rent without having to make concessions in the process. Your relationship with any landlord is always a business relationship, level the playing field by hiring a professional that will educate you with the information your landlord is withholding.
Hire a tenant representative
You wouldn’t hire an attorney to represent you if they represented your adversary in a legal dispute. Why allow a brokerage firm to represent your company in negotiations if the majority of their business is representing landlords and their interests?
Just because a full service brokerage has a ‘tenant rep’ team, doesn’t mean they are free of conflict. They sit in the same company meetings as the landlord representatives who share details of your lease. They are also under pressure from their co-workers and management to ‘bring them a deal’ which means your best interests aren’t upheld.
A tenant-only brokerage has no allegiance to the landlord community and only negotiates terms and conditions that achieve your goals, regardless of which properties are under consideration. The best part is that your tenant representation comes at no cost to you.
Let’s be serious, your companies rent revenue is paying for your landlord’s mortgage, property taxes, property maintenance and insurance. It also pays for the landlord’s agent fees. Having someone on your side is not only smart, it will save you money. A pure tenant representation agent takes part of the fee the landlord pays their agent, which would be paid to them regardless if you had someone on your side or not.
Not all buildings are created equal
While there may be striking similarities between the look and type of amenities of many buildings, there are very important differences to consider when selecting a location.
See our blog post about the difference between a property’s rentable and usable square footage before you select one site over another.
Your space is a reflection of culture. It can be used to recruit talent
Want to attract top talent and keep them? Create the type of space which showcases your company’s unique offerings and capabilities during the leasing process.
Design your ideal space and negotiate a tenant improvement package that will bring your vision to life. When done correctly, your space will encourage collaboration, and benefit from an increase in output while becoming one of the top places to work
Want to learn more about leasing a commercial space? Work with our team of professionals to help you locate your ideal space in Southern California. We are a tenant only representation company and can help you navigate each of these key things in your process.
Leave us a question in the comments or click the link below to start the process of looking for a space that exceeds your expectations
