Top 10 Mistakes Tenants Make When Leasing Industrial Property (And How to Avoid Them)

Leasing a commercial property is an intricate process that requires thoroughness, attentiveness, and knowledge. Understanding important laws, fees, terms, and other factors pertaining to the lease can help tenants avoid expensive errors, headaches, legal issues, and more. From neglecting market research to ignoring hidden costs to misunderstanding unfavorable lease terms, here are 10 common mistakes that tenants make when closing on an industrial space lease.

10 Common Mistakes to Avoid When Leasing Industrial Property

Here are the top 10 mistakes we regularly see – and how you can avoid having to deal with them.

1. Not researching the local market thoroughly
2. Underestimating space requirements
3. Overlooking building specifications
4. Failing to consider zoning laws
5. Not considering future growth or technology needs
6. Ignoring hidden lease costs
7. Skipping a thorough due diligence process
8. Signing a rigid long-term lease without flexibility
9. Not understanding lease clauses
10. Failing to negotiate tenant improvement allowances (TIA)

Mistake #1: Not Researching the Local Market Thoroughly

When you lease a building, you’re not just getting the building – you’re also getting all of the market factors that go along with it. Unlike buying a piece of clothing or leasing a vehicle, a building is largely defined by the area on which it sits, and choosing the wrong area can be a costly mistake.

When you’re searching for an industrial property, looking at available listings online is a good place to start. But along with scrolling through listings, you’ll also want to become familiar with the market conditions that go along with the area – including pricing trends, vacancy rates, neighborhood developments, tax rates, and labor shortages.

In addition, consider public transport options, accessibility by highway and other modes of transportation (Charlotte benefits from the Charlotte Regional Intermodal Facility and the Charlotte Douglas International Airport), and local demographics.

The importance of location can’t be overstated, and taking a strategic approach to the market trends around your new space is an important factor in enjoying successful business operations long term.

One of the best ways to avoid this industrial leasing mistake is to work with a local tenant representation broker who understands the ins and outs of the market. If you’re searching for a property in the metro Charlotte area, our expert team at Regent Commercial Real Estate can help.

Mistake #2: Underestimating Space Requirements

Another one of the most common critical mistakes that business owners make when leasing a commercial space is choosing a space that’s either too small or too large. A space that’s too small can lead to costly expansions, employee frustration, seasonal backups, stunted growth, and even physically dangerous situations.

On the flip side, having an excessive amount of square footage means unnecessary additional rent, increased maintenance responsibilities, and extra utility costs.

Choosing the ideal industrial or warehouse space requirements takes careful planning and research. Consider the business’s operational needs, including inventory, loading areas, space for navigating equipment, office and break rooms, returns, and peak seasons.

Still not sure how much space you need for your business plans? Check out these simple formulas to gauge your approximate needed square footage.

Mistake #3: Overlooking Building Specifications

Overlooking building specifications is another one of the most common pitfalls lessees make when choosing a building.

Checking into all of the important industrial factors before signing a lease is one of the best ways to ensure a successful leasing experience. Industrial properties are so much more than four walls and a roof. And while a tenant improvement allowance can help to improve on any inadequacies, they still need to be considered and planned for.

As you search for buildings, take into account factors such as ceiling height, loading capabilities (dock doors, loading docks, and room indoors for forklifts and moving product around), power supply, HVAC systems, parking and truck access, security features, and sprinkler systems.

Mistake #4: Failing to Consider Zoning Laws

Industrial zoning requirements vary by state and by area, and failing to consider zoning laws in a given area is one of the key mistakes industrial tenants make when choosing a property.

Zoning laws determine factors such as what type of activities are permitted on the property, the way a parcel can be used (for buildings, driveways and walkways, parking, etc.), signage requirements, pollution allowances, and more.

Failing to research and consider industrial zoning can lead to legal battles and other challenges. Getting a property rezoned is not easy, so take the time to understand industrial zoning before signing a lease.

Mistake #5: Not Considering Future Growth or Technology Needs

It’s no secret that industry is becoming more and more reliant on technology. Whether your company is already deep into the world of automation and robotics or might consider more advanced technology in the future, make sure your building can accommodate these needs.

Pay close attention to the technology features of any building you’re considering, think about potential scaling in the future, and plan for tech upgrades, such as high-power needs or IoT infrastructure.

Mistake #6: Ignoring Hidden Lease Costs

Another one of the biggest mistakes that first-time tenants make is ignoring or simply not understanding the hidden lease costs in commercial lease agreements.

Rental rates are just one consideration when planning for the ongoing cost of leasing a building. Other additional costs can include property taxes, utility costs, common area maintenance (landscaping, janitorial services, security, repairs, etc.), insurance, rent escalation, and administrative fees.

Unexpected costs in a commercial property lease can cause financial strain and a poor relationship with your landlord. Before signing a lease, ask for a full cost breakdown, audit past bills, and negotiate caps on variable expenses.

Mistake #7: Skipping a Thorough Due Diligence Process

Conducting due diligence will give you important insight into the condition of a building, safety hazards, environmental hazards, and more. Whether a landlord is hiding important information or simply isn’t aware, failing to have a building checked out by experts can lead to costly problems or major safety concerns.

Industrial due diligence generally includes steps such as an environmental site inspection, a property condition assessment, a zoning compliance check, a title review, and more.

Usually, when you work with a tenant broker, he or she will handle the due diligence process, so you don’t have to worry about checking every box.

Mistake #8: Signing a Rigid Long-Term Lease Without Flexibility

Another one of the most common industrial leasing mistakes lessees make is locking into a long-term lease with no expansion or exit options. 10-year leases can work well for large, established companies, but for those that might be experiencing any major changes within the decade, locking into long-term leases is a significant decision that takes careful consideration.

A better option is to opt for shorter lease terms with renewal options, make sure you have sublease rights if necessary, and/or check into the early termination terms.

Mistake #9: Not Understanding Lease Clauses

The above are just a few lease clauses that you need to be aware of before signing a lease. Overlooking unfavorable clauses (such as auto-renewals or excessive penalties) can be a major setback.

Compared to residential leases, commercial real estate leases can be quite complex. And while residential leases are protected by many regulations, commercial leases are much less so. This makes it vital to understand the lease clauses so that you don’t find yourself in a messy situation.

Some of the most important lease clauses to check into include:

1. Renewal options
2. Rent escalation clause
3. Maintenance and repairs
4. Use clause
5. Default and termination

The best way to avoid misunderstanding lease clauses and suffering financial losses or worse is to work through the leasing process with a tenant rep broker. An experienced broker can guide you through the lease negotiations so you don’t have to worry about deciphering dozens of pages of lease documents.

At Regent CRE, we have your best interests in mind. We work hard to make sure that your lease suits you well so that there are no disappointing surprises down the road.

Mistake #10: Failing to Negotiate Tenant Improvement Allowances (TIA)

There’s plenty to negotiate in commercial leasing, including rent amount, renewal terms, and the security deposit – just to name a few. But don’t gloss over tenant improvement allowances (TIA).

A tenant improvement allowance is a sum of money that the landlord grants to the lessee in order to make upgrades – or tenant improvements – to the building. These upgrades make the space more usable for the tenant, but they also benefit building owners by adding value to the property.

When negotiating a lease, be sure to request a TIA upfront and clarify what it covers and what’s required of you as the tenant (for example, document processes and reimbursement deadlines). In some cases, the landlord will offer a higher allowance in exchange for longer lease terms.

FAQs About Common Tenant Mistakes When Leasing Industrial Property

What market factors affect an industrial lease?

Area pricing trends, vacancy rates, local developments, tax rates, and the labor pool are important market factors to consider when leasing an industrial property. The location of the building you lease is often just as important as the building itself.

Working with a local tenant representative is one of the simplest and best ways to get a thorough, unbiased understanding of the local market when you’re looking for properties in different neighborhoods.

What are the downsides of leasing an industrial space that’s too large? 

The main downside is the added costs of additional rent, maintenance, and utilities. Too much space means more to manage and added financial burdens.

What building specifications are most important in an industrial property?

When leasing an industrial space, be sure to examine the most important building specs including clear height, cubic storage capacity, loading capabilities, power supply, HVAC systems, security, and parking and truck access.

What is industrial zoning?

Industrial zoning is a land-use regulation that specifies a certain area or property for industrial use – such as manufacturing, warehousing, distribution, or other commercial endeavors.

In most areas, industrial zoning is split into light industrial and heavy industrial. 

Zoning laws vary by area. In Charlotte, industrial is often classified into ML-1, ML-2, CG, CR, I-1, and I-2.

It’s highly important to research zoning and what is allowed on a property before signing an industrial lease.

What are some hidden costs in industrial leases?

Many tenants focus only on the cost of monthly rent and neglect to calculate hidden costs such as property taxes, utilities, CAM (common area maintenance), insurance, rent escalation, and admin fees.

Tap Into Regent CRE’s Expert Knowledge of Charlotte Real Estate

Looking for a commercial lease in the metro Charlotte area? We can help. Whether you have your eye set on industrial real estate, office space, flex, or retail space, we’re here to make sure you don’t have to worry about making these mistakes when signing a lease.

Navigating the world of commercial buildings can be tricky, but we’ve done it hundreds of times before. With SIOR (Society of Industrial and Office Realtors) and CCIM (Certified Commercial Investment Member) designations, you can rest assured that you’re partnering with one of the top brokers in the industry.

Ready to find your property? Contact us to get started. We’re on your team.