How to Rent a Retail Property for Your Business
How to Rent a Retail Property for Your Business
Whether you’re opening a new business, looking to expand into a bigger space, or ready to sign a new lease, locating retail space for lease requires careful research and skilled negotiations.
Making the right choice increases your chances of long-term success. However, if you go for a bargain-priced space, business may suffer.
While shopping for new retail commercial space may appear similar to a residential rental, there are major differences. We’ll go into these further later in this article.
In the meantime, here’s the best place to begin your search for retail space for lease.
Determine Your Business Requirements
As you’re already aware, what works for one retail business won’t work for another. Therefore, you’ll need to determine the best location before you begin viewing rental spaces for lease.
If you’re opening a bargain outlet, customers probably won’t mind going out of their way in search of a deal.
If you’re selling five-figure entertainment systems or designer footwear, customers will expect you to be neighbors with similar businesses.
Opening a franchise? Network with other franchise owners regarding space and location requirements.
If you’re expanding or relocating an existing business, consider your regular customers’ shopping habits. Will your new location be convenient to them? Doing this can help build loyalty, something particularly valuable in today’s shopping environment.
Next, you’ll want to look at retail lease prices in the areas you’ve chosen, and determine what’s truly affordable in the long run.
Triple-Net Leases and Other Costs
If you’ve been searching for your first retail rental, you may have noticed the acronym NNN following a space’s square foot price. This isn’t an acronym: It’s short for “triple-net” lease.
This means that you’ll be paying more than a basic, square foot rental rate. Your lease will probably contain some, or all, of the following costs:
Property taxes are part of commercial real estate (CRE) ownership. A triple-net NNN lease will include your retail space’s share of these taxes. Since your landlord has no control over tax rates, this isn’t a negotiable number.
Property insurance is another non-negotiable part of your lease. Depending on your business, you may need to provide proof of insurance to qualify for tenancy.
Liability and worker’s compensation insurance, while usually not part of your rent, is still a requirement for a retail business. Your landlord may want to see proof of coverage.
The following costs may or may not be in your lease, as they’re usually limited to retail space within a multi-tenant building.
Upkeep of Communal Areas
CAM, or Common Area Maintenance, are fees charged to maintain shared or “common” spaces. Some examples include:
Parking lots;
Hallways;
Landscaping; and
You may be able to negotiate your CAM fees, especially if your retail space is one of the smaller ones in the building, if your business is far away from the landscaping, or if you’re allowed fewer reserved parking spaces than others.
Utilities
Utility bills may also be a cost that’s not included in your base rental rate. Like a residential property, you’ll be paying for your retail space’s electrical, HVAC and water bills.
Depending on your business, you may have other utility costs, such as:
Specialized lighting for displays, especially if you’re opening a boutique-type business.
Power-intensive fixtures, such as kitchen utilities within a cafe or restaurant.
Researching your future utility bills can be tricky, and you may have to depend on estimates.
Now that we’ve reviewed costs that are included in most retail lease agreements, here are some additional costs to consider.
Preparing for Your Opening
While you may be lucky and find a retail space that requires minimal effort to make it your own, most will need some remodeling. This is called a build-out.
Costs for a typical build-out are sometimes reimbursed by the landlord. This is done with a Tenant Improvement Allowance, or TIA. These are usually calculated on a square foot basis.
Here’s an example:
If you leased a 4,000 square foot retail space, and you negotiate a $20.00 per square foot improvement allowance, your landlord would agree to cover $80,000 of the costs of your build-out.
Keep in mind that you’ll pay the costs of the build-out when work is performed before you open for business. Ask your landlord if you can defer your initial rent payments until you’ve been open for business for a while.
Feeling a bit overwhelmed by these costs and details? You may be best off working with a commercial real estate (CRE) broker.
Retail CRE Broker Benefits
First and foremost, a CRE broker spends 100% of their time negotiating leases for clients. This means that, when you decide to enlist the services of a broker, you’ll benefit from their experience.
Other reasons to work with a broker include:
Local networking skills. This is especially important if you’re unfamiliar with your new neighborhood. A broker will be familiar with much more than the current market atmosphere. Brokers are often aware of future changes, such as the arrival of a new residential subdivision or major highway, that could bring more business your way.
Networking connections. Brokers spend a big portion of their working hours with other retail tenants and their landlords. This means that a broker may know about the ideal retail space for your business before it hits the market.
A savvy CRE broker will also refer you to local attorneys, contractors and businesses related to your own.
Earlier in 2022, data showed that over 50% of consumers were comfortable returning to traditional, bricks-and-mortar retail stores.
In addition, more retailers have found that adding services that enable consumers to pick up retail goods after ordering online have increased their profits.
Do your research, consider working with a CRE broker, and good luck finding your perfect retail space for lease in Illinois!