Leasing commercial space can be complicated and confusing which is why it is essential to have professional representation,” says Chela Tu, Commercial Broker with BOLD Commercial Real Estate.
Commercial real estate refers to real estate that is used for business purposes, as opposed to residential real estate, which is used for living purposes. Some examples of commercial real estate include office buildings, retail stores, warehouses, and multifamily apartment buildings.
When it comes to investing in commercial real estate, there are several factors to consider. These include the location of the property, the type of property, the financial performance of the property (such as rental income and operating expenses), and the overall market conditions.
There are several different types of commercial real estate, including office buildings, retail properties, industrial properties, and multifamily residential properties. Each type of property has its own unique set of characteristics and considerations, and investors should carefully evaluate the specific risks and potential returns of each type of property before making an investment.
Lease rates are expressed in price per square foot per month. To calculate monthly rent multiply rental rate by square feet and divide by 12. Types of space in order of (typically) most expensive per square feet to least expensive: Office is usually a full-service lease. That means the Landlord pays for all utilities, common area maintenance, taxes, and insurance, sometimes even janitorial. Tenant would pay only what they need for the exclusive use of their space such as telephone service and internet. Retail spaces include restaurants, shopping centers, businesses that need a storefront. Retail leases are typically triple net (or NNN). Which means Tenant pays base rent ($/SF) plus their portion of the building’s taxes, insurance, and common area maintenance.
When looking at retail spaces, you should ask “what is TICAM?” To calculate your total monthly rent, don’t forget to add TICAM to the base rent rate. Flex spaces are a hybrid of office and warehouse – for businesses that need some office for admin work or to see customers, and a production or storage space. Depending on the property, flex space leases maybe full service, triple net, or modified gross (another type of lease where the Landlord pays for most but not all of the operating expenses). All you need to remember is to ask between Tenant and Landlord, who pays for what.
Warehouse is your least expensive per square foot commercial space – but it usually huge compared to the other categories used for businesses in logistcs or manufacturing. Key terms to ask about in a commercial lease: What is the length of the lease? How is the space offered – will the Landlord make any improvements or provide any Tenant Improvement Allowance (TIA, also expressed in $/SF) Can I have some free rent to ufit the space to start operating my business? How is it zoned and what are the permitted uses? Have your financials ready: Two years of most recent tax returns (business or personal) plus a personal financial statement (unless, for example, you are an established corporation with ample cash flow to show). You need to demonstrate to the Landlord that beyond your everyday living expenses you have the funds to pay rent on time for the length of the lease.
You may be asked to sign a personal guarantee – it’s a good question to ask. If you are a new business, have your business plan ready, and evidence to show that you are well prepared and capable to bring in enough money to thrive as a business and pay rent.
Finally, hire a broker. It’s (usually) free. Just like in residential sales where the seller pays commission to their seller agent, who then splits the commission with the buyer agent – you can have an agent dedicated to advocate for you best lease terms on your behalf and their commission is paid for by the landlord. Bonus: “In what case would I need to pay my buyer agent/tenant rep?” If you are looking for an off-market property and you need your agent to scour high and low, cold call to find you a deal on a property that’s not for sale or lease, and the owner is not willing pay your broker’s commission, then you need to pay your broker who is going the extra mile.
Investing in commercial real estate can be a lucrative opportunity, but it also involves a significant amount of risk. It is important for investors to carefully research the market and the specific property they are considering, and to seek the guidance of a professional real estate advisor or broker before making any investment decisions.