If you’re looking to lease retail space, there are a few things you need to take into account. Renting or leasing commercial space is a big decision—and a big financial investment. You need to be sure that the location is right for your business, and that you can afford the monthly payments and any other associated costs. In this blog post, we will explore some of the expenses you need to consider when leasing retail space. From the cost of renovations to utilities and more, read on to learn about all the different factors that can affect your bottom line when leasing retail space.
The Cost of Rent
When considering the cost of rent for retail space, there are a few things to keep in mind. First, base rent is not your only rental cost. In addition to base rent you will also be required to pay your share of operating expenses (aka NNN)
Second, the size and location of the space will affect the price. Nicer, more visible locations will have higher base rental rates. Lastly, the length of the lease can impact the monthly rent payments.
Now that you know some of the factors that can affect rental prices, let’s take a look at an example. Let’s say you’re looking at leasing a 1,000 square foot retail space in Austin, Tx. The average base rate per square foot per year for retail space in Austin is $33 sf. In addition the NNN are $12 sf/year. So your total rate would be $45 sf. This means that your monthly rent would be $3,750. However, if you were to lease the same size space in a less visible older property, your monthly rent would be less.
As you can see, there are a lot of factors to consider when it comes to the cost of rent for retail space. Be sure to do your research and work with a reputable retail leasing company to ensure you get the best deal on your next retail space lease!
Operating Expenses (NNN)
Pretty much all retail buildings are Triple net (NNN) leases. Meaning in addition to base rent tenants will also be responsible for their share of the operating expenses which are the property taxes, building insurance, and common area maintenance (CAM). These costs are passed along to tenants 100%. While it's not likely you will ever avoid having to pay NNN you can sometimes negotiate to have a cap on the landlords controllable expenses.
Landlords have to pay property taxes on the buildings they own. The amount of property tax you will pay depends on the value of the property and the tax rate in your area. Property taxes are typically included in the NNN. Since the landlords do not have control over whether the taxes go up or down they are not typically negotiable.
This is different than the general liability and property insurance that you will have to have. This type of insurance protects the property owner from financial loss if the building is damaged or destroyed. The cost of building insurance will vary depending on the value of the property and the level of coverage the landlord chooses. This expense is also passed to the tenants 100%.
Common Area Maintenance
When leasing retail space, there are a number of expenses to consider beyond the monthly rent. One important factor is common area maintenance (CAM), which covers the costs of maintaining shared spaces (lobbies, restrooms, parking lots, landscaping, etc.) within the shopping center or mall. This can include cleaning, repairs, landscaping, and snow removal. CAM charges are typically passed on to tenants through their lease agreement, so it's important to be aware of these costs before signing a lease.
There is no way to avoid paying CAM charges however it is sometimes possible to negotiate a cap on controllable expenses.
When you lease retail space, there are a number of expenses to consider beyond the base rent. These include the costs of tenant improvements (TI), which are alterations or additions made to the space to suit your business. TI costs can vary widely, depending on the scope of work involved.
If you're leasing a space that's already been built out for retail use, your TI costs will be lower than if you're starting from scratch. However, even in a pre-existing space, you may need to make some changes to suit your specific needs. For example, you may need to paint, install new flooring, install new lighting, adjust the layout, add or remove walls, or make changes to the HVAC system.
No matter what type of space you're leasing, it's important to factor in TI costs when budgeting for your new retail location. Work with your landlord and contractor to get an accurate estimate of what it will cost to get the space ready for your business before signng a lease.
General Liability and Property Insurance
You will also need to factor in the cost of insurance. General liability and property Insurance is important for any business, and it's also a landlord requirement if you want to lease retail space. The lease contracts will typically outline the insurance requirements required by the landlord. The cost of insurance will depend on factors such as the type of business you have, the value of your property, the coverage you choose, and the location of your business.
The Cost of Utilities
The cost of utilities varies depending on the type of retail space you are leasing. For example, the size of your retail space will impact your utility costs – a larger space will require more electricity and gas. Tenants should be prepared to pay for their own utilities, such as electricity, gas, and water. Depending on the size of the space and the type of business, these costs can vary greatly. For example, a restaurant will have higher utility bills than a small retail store.
To get a rough estimate of your monthly utility costs, speak with the landlord or property manager of the retail space you are considering leasing. They should be able to give you an estimate based on the previous tenants’ usage. As a general rule of thumb budget about $1.50 to $2.00 sf per year.
Furniture, Fixtures, and Equipment (FF&E)
When leasing retail space, it's important to factor in the cost of furniture, fixtures, and equipment (FF&E). This can include items like shelving, racks, counters, display cases, and signage.
It's common for tenants to be responsible for their own FF&E. This is something you'll need to factor into your budget when considering a retail space lease. If you're not sure what kind of FF&E you'll need for your business, take some time to do some research. There are many online resources that can help you determine what's necessary based on the type of business you have.
Once you have a good understanding of the FF&E you need, start shopping around for the best prices. Compare quotes from different suppliers and make sure to get a warranty or guarantee on any products you purchase. Installing FF&E can be a big job, so be sure to factor in the cost of installation when budgeting for your retail space lease.
The Cost of Inventory
When leasing retail space, one of the biggest expenses you'll face is the cost of inventory. Depending on the type of business you're in, your inventory costs can vary greatly. For example, if you're a clothing store, your inventory might consist mostly of clothes and accessories, which generally have a relatively low cost per unit. On the other hand, if you're a furniture store, your inventory might consist mostly of large pieces of furniture, which can be quite expensive. If you have a restaurant then you will have to pre purchase food items and supplies.
In addition to the cost of the actual merchandise, you also have to factor in the cost of storing and shipping your inventory. If you plan on keeping your inventory in your leased retail space, you'll need to factor in the cost of storage shelves, racks, and other storage fixtures. And if you plan on shipping your inventory to your customers (as opposed to them picking it up at your store), you'll need to factor in the cost of packaging and shipping supplies as well as shipping fees.
Marketing and Advertising
Another expense to consider is the price of marketing and advertising. In order to attract customers to your new business, you will need to invest in some marketing and advertising. This can include online ads, print ads, flyers, and more. The cost of marketing and advertising will vary depending on the methods you choose to use.
How to Negotiate the Best Lease Terms
When it comes to leasing retail space, the most important thing to keep in mind is that you are essentially entering into a long-term contract. As such, it is important to make sure that you are getting the best possible terms for your lease. Here are a few tips on how to negotiate the best lease terms:
1. Know what you want: Before starting negotiations, it is important to know exactly what you want out of your lease. What kind of space do you need? How long do you need the lease for? What is your budget? Once you have a clear idea of your needs, you can begin negotiating with landlords from a position of strength.
2. Do your research: It is also important to do your homework and research different retail spaces before settling on one. This way, you will have a good idea of what is available and at what price point. This information will be invaluable during negotiations.
3. Be prepared to walk away: If the landlord isn't willing to meet your needs, don't be afraid to walk away from the deal. There are other retail spaces out there, and there's no sense in signing a bad lease just because you're desperate for space.
4. Get everything in writing: Once you've reached an agreement with the landlord, make sure that all of the terms and conditions are clearly spelled out in the lease agreement. This way, there will be no surprises down the road and both parties will be