How To Negotiate Leasing A Commercial Property

LChoosing a lease for your business is a big step not to be taken lightly. Without experience, navigating the world of leasing commercial real estate can seem like traversing a labyrinth without a map.

If you feel lost when considering lease terms, deciphering complex jargon, or engaging in lease negotiations, then you know that you aren’t alone. Many business owners in North Carolina, South Carolina, and the entire nation are in the same boat.

Learning how to negotiate can help you navigate commercial real estate leases with confidence. Even if you plan on working with a professional broker to facilitate negotiations and the lease, education helps you feel empowered in your decision making and teaches you how to find the best broker for your goals.

Here are six steps to take before and during a commercial real estate lease negotiation to make sure that you’re getting the best deal – and commercial space – for your business.

Step 1: Verify That a Lease Is Your Best Option

When it comes to commercial real estate, the decision to lease is a significant one that might not necessarily be your best option. Countless variables come into play when deciding whether or not to lease, including:

• Base rent
• Term of the lease
• Your business needs
• Property tax
• Tenant improvement allowance
• Area maintenance
• Location options
• Coworking

These considerations and more will help you determine whether leasing a commercial property will meet your business requirements. Lessees must ensure they are fully cognizant of the costs they are agreeing to cover. It is about more than the basic rent amount of the lease; understanding the full picture is the key to a beneficial lease agreement.

Step 2: Identify the Property Characteristics You Need

Figuring out the specific characteristics you need in a commercial property is an essential step in the leasing process. While this sounds simple enough, this procedure demands thorough market knowledge and is best approached systematically, by noting down details for each property on your list.

Potential lessees should identify key characteristics such as location, size, layout, and facilities for both business owners and their employees. Will an open workspace suffice, or are individual offices required? Perhaps a meeting room and a kitchen area will prove beneficial? Would you prefer you start your business in North Carolina, South Carolina, or somewhere else?

Before contacting a property manager, it’s important to know your basic requirements. If you’re having trouble with this step, then you should contact a real estate broker. Partnering with a real estate agent or broker not only facilitates the process of site selection but also provides a negotiating advantage when the time comes to secure a favorable lease agreement.

Step 3: Find a CRE Broker

Engaging the right professional help is crucial when you’re looking for a commercial real estate (CRE) broker. Expert tenant representation makes a world of difference, from simplifying the property search to lease negotiation. Start by looking at reliable brokers in your desired area—whether you’re focused on North Carolina, South Carolina, or elsewhere.

Begin your CRE broker search by checking individual brokers for market knowledge, range of services, and past clients’ experiences. A broker with a deep understanding of your target market and the area can guide your search effectively, and a wide range of services means they can help with every stage of the process. Past clients’ feedback can provide a gauge of the broker’s professionalism, communication style, and reliability.

Lastly, remember the importance of broker transparency. A good broker will disclose all aspects of the commercial property for rent, including any costs from triple net leases to the base rent. This openness facilitates trust and ensures that you, the business owner, can make an informed leasing decision.

Benefits of a SIOR, CCIM CRE broker versus a traditional CRE broker

If you are looking to invest in commercial real estate or require expert assistance in leasing or selling properties, be sure to work with a professional broker who has achieved the prestigious designations of SIOR (Society of Industrial and Office Realtors), CCIM (Certified Commercial Investment Member), and CRE (Counselor of Real Estate).

One of the primary advantages of working with an SIOR, CCIM, or CRE broker is their advanced level of specialized knowledge and expertise. These designations require rigorous education, experience, and a commitment to adhere to ethical standards. An SIOR broker, for example, specializes in industrial and office properties and possesses deep knowledge of these sectors and their specific markets.

Similarly, a CCIM broker has expertise in analyzing commercial investment properties, financial analysis, valuation, and negotiation. They can provide strategic, data-driven advice and help you make informed decisions. A CRE broker possesses a broad range of expertise across various aspects of commercial real estate and can offer invaluable guidance on complex matters.

Whether you are buying, selling, or leasing commercial properties, partnering with a SIOR, CCIM CRE ensures you receive the highest level of expertise, access to exclusive resources, and personalized guidance throughout the process.

Step 4: Find the Right Commercial Property

Embarking on the search for the correct commercial property can seem daunting, but armed with a detailed list of requirements and a skilled broker by your side, the process is more manageable.

Location is often considered one of the most critical elements of commercial real estate. Consider your client’s needs carefully. They are crucial in the context of your business. Also consider what areas might offer a space that fits your needs. Your broker will assist in filtering out properties that meet your specifications.

Selecting between a gross lease or a triple net lease can vastly affect your bottom line. Also, consider lease length and rental rates that align with your financial capabilities.

The right commercial property aligns with your current needs and future growth. Therein lies the art of finding the perfect space. It’s more than a base rent agreement, it’s a strategic move for the future of your business. Consider potential future needs before settling on a property.

Step 5: Understand & Choose the Type of Lease Best Suited for You

Understanding the various types of commercial real estate leases is crucial before you embark on the lease negotiation process. The type of lease chosen ultimately affects your bottom line and shapes the financial structure of your business.

Most leases come in one of three types: net lease, gross lease, and percentage lease.

• Net Lease: You, as the tenant, pay a portion of the property tax, insurance, and maintenance, in addition to base rent.
• Gross Lease: The landlord calculates an estimate of the operating expenses and incorporates it into your rent. Expenses are covered in this single flat amount you pay.
• Percentage Lease: Common for retail businesses, where you pay base rent plus a percentage of monthly sales.

A net lease can further be categorized into single net lease (N), double net lease (NN), and triple net lease (NNN), each requiring the tenant to pay different types of operating expenses besides the rent.

With different options out there, enlisting the services of a commercial real estate broker with extensive lease negotiation experience becomes invaluable. They can help you understand and choose the lease type that best suits your needs.

Step 6: Request, Negotiate & Execute Lease Terms

Once you’ve found the right commercial property that suits your criteria and have decided on the type of lease that benefits your operation, it’s time to negotiate lease terms. You, the lessee, alongside your broker, will engage in a contact property negotiation process with the property owner or their representative.

The negotiation process may include provisions about rent amount, lease term, security deposit, sublease rights, renewal options, and tenant improvement allowance. This process is a collaborative back-and-forth where the tenant and landlord aim to meet their respective goals.

Do not shy away from proposing a counteroffer if you feel a particular term or condition doesn’t work for you. Rent lease negotiations may seem complex, especially the part about property tax, operating expenses, or common area maintenance. Remember, your broker is equipped to break down these elements, ensuring you have a clear understanding.

How Regent CRE and Brian Smith can help navigate the North and South Carolina commercial real estate market

When it comes to navigating the real estate market in North and South Carolina, you want to ensure that you have experienced and trustworthy professionals by your side. That’s where Regent CRE and Brian Smith come in. With their expertise and knowledge in the region, they make ideal choices when it comes to real estate.

Regent CRE is a leading real estate company that specializes in the North and South Carolina markets. Their extensive experience and in-depth understanding of the local market dynamics and trends are crucial when it comes to making informed decisions. Brian Smith, as a professional real estate agent with Regent CRE, brings an added advantage to the table. His dedication to customer satisfaction and his strong negotiation skills make him an exceptional choice. Brian understands that buying or selling a property is a significant financial decision, and he goes above and beyond to ensure that his clients achieve their goals.

By choosing Regent CRE and Brian Smith, you can have peace of mind knowing that you’re working with experts who will prioritize your needs and provide you with personalized solutions.

Negotiating a Commercial Real Estate Lease FAQs

What is a cap rate in commercial real estate?

The capitalization rate, often referred to as the “cap rate,” is a fundamental metric used in commercial real estate to evaluate the potential return on an investment property. It’s a crucial tool for both investors and property buyers to assess the profitability and risk associated with a particular real estate asset. The cap rate is calculated by dividing the property’s net operating income (NOI) by its current market value or acquisition cost.

How do you determine fair market rent for comparable properties?

To determine fair market rent for commercial property, analyze comparable properties in the same location, considering their size, amenities, and condition. Adjust the rents based on any differences and factor in the property’s unique features and location. Consider tenant demand, operating expenses, and economic indicators to arrive at a competitive and reasonable rent.

How do you lease commercial real estate?

To lease commercial real estate, start by seeking assistance from a reputable real estate broker specializing in commercial properties. The broker will help identify suitable spaces, negotiate lease terms, and guide you through the leasing process, ensuring your business needs are met. They play a crucial role in navigating the market, finding the right property, and facilitating a smooth leasing experience.

How do you lease commercial property?

When leasing commercial property, connect with a trusted real estate broker who specializes in commercial real estate. The broker will assist you in finding appropriate properties, understanding lease terms, and negotiating the best deal for your business. Their expertise and market knowledge are essential for a successful and tailored leasing experience.