Finding the perfect location for your retail store is essential in order to maximize the amount of foot traffic and visibility that your store obtains. However, the most time consuming and the most important aspect of renting a retail space will be negotiating a lease. Commercial leases are often longer than home rental terms with an average of about three years. A poor lease agreement will overlook certain factors and can drain you financially. Therefore, we have put together some tips regarding how to negotiate the best commercial lease for your retail store.
Setting a budget and must-have amenities
If you haven’t yet found a retail space that you want to lease, then the first step is deciding on your budget, the amenities that you must have and the amenities that would be nice, but not necessary. For example, you’ll want to be able to sublease your space if things take a turn for the worst in your business, but you may not need free parking.
Understand your customer
In order to find the perfect place for your retail space, identifying your target customer is essential. Consider details such as age, gender, interests, shopping habits, and any other specific criteria that differentiates your target shopper in order to decipher where your target customer is most likely to shop.
Calculate all costs
Calculating your leasing costs includes more than just the price of your rent. Depending on the type of lease that you settle on, you may be responsible for any taxes, fees, or maintenance needs that your space may require while you are leasing the space.
Consult a commercial broker
Commercial brokers will be able to guide you through a process with which they are very familiar. They have a knowledge bank in the industry that is most likely more expansive than your own and they can help you negotiate the best deal with clauses and deals that you may have overlooked. If you are looking for a knowledgable commercial real estate agent click here.
Don’t pay asked base rent
Landlords will set rent at a maximum amount that they think a tenant might agree to. However a landlord doesn’t actually expect a tenant to pay this maximum price. Be prepared with a counter offer at 10-15% below the asking price. Following your counter offer, you and the landlord will typically be able to negotiate a price somewhere in the middle.
Learn the definitions of lease options
A commercial broker will be able to assist you with these different terms, but you should know the difference between a gross rent lease, a double net lease, and a triple net lease. These different lease options will require you to pay different amounts in your proposed commercial lease.
Consider the length of lease terms
Commercial leases often times require longer lease terms between three and five years. This can be a good thing for tenants who are interested in doing improvements within the space because they will be able to spread the expenses over a longer period of time. If you are a tenant doing improvements, then there are certain options that should be looked into such as a tenant improvement allowance (TIA). On the other hand, if you lease out this space and decide that you do not like it after a year this could also be a problem. However, there are also certain clauses that can help mitigate this risk such as a kick out clause which will allow a tenant to break the lease under certain conditions or a sublease clause. A sublease clause will allow you to recoup lost rent by subletting your current space if you need to move to a different retail space.
Negotiate renewal options
You should negotiate a built-in option to renew and to get future rent increases capped. This is an important clause in your lease for it will protect your rights as a tenant and ensure that you will maintain negotiation leverage if market conditions tilt in favor of the landlord.
Compare market rates
In order to get the most accurate assessment of the average price per square foot for your retail space, review the surrounding properties that are similar to the one in which you are interested. This will help you successfully negotiate the rates for your space and give you an idea of how much flexibility you have when it comes to negotiating.
Check the square footage yourself
Square footage measurements can become out of date easily, as each commercial retail tenant tends to change the space according to their needs. Therefore square footage may have shrunk over the years and you are only renting the usable square footage. You do not want to be paying rent on square footage that is not usable or that is part of the common area of a building which landlords have a tendency to include in your square footage. Measure the space yourself to ensure that you are paying for what you are using.
