When renting commercial real estate you can find and rent space on your own OR you can hire a tenant representation broker to help you find and lease commercial space. A good commercial real estate tenant rep will help you determine the ideal size space you need now and in the future, find the best location for your business based on your criteria, and negotiate lease terms and contract to ensure you get the best deal and avoid mistakes.
There are many benefits of using a tenant rep broker. Once they determine your ideal size, location, budget, and timing they will compile a list of properties specific to those needs then tour them with you so you can see in person. They also ensure to ask the landlords all the right questions so you know the expectations for each property. Once you find a property or two that works the tenant rep broker will negotiate on your behalf with the landlord. Commercial leases are typically 3-5 year commitments and having the right tenant representation broker in your corner will make a big difference.
It Cost You Nothing to Hire a Tenant Rep Broker
You think with all the service benefits of a tenant rep broker provides you would have to pay a fee. However in commercial lease transactions tenants don’t typically have to pay anything for their services. Commercial landlords benefit when tenants lease space in their buildings and are willing to pay the tenant representative a broker fee in return for bringing them tenants. Landlords budget for these types of expenses and they are used to paying their listing agent and a tenant rep in most commercial lease deals. Don’t worry though, even though a landlord pays the commissions the tenant representative you hire has a fiduciary responsibility to represent your best interests and maintain confidentiality.
Typical Tenant Rep Commission Fees Paid By Landlords
Only in the event a lease is executed is when a tenant rep is paid a commission by the landlord. The amount depends on the type of space, type of lease, length of lease term, and the market you are in. In Austin, Tx below are the typical commission percentages that a tenant rep makes.
Commissions Paid to Tenant Representatives on Office Leases
4% of the total gross rent throughout the lease term. The gross rent is calculated by adding the base rent plus the operating expenses (aka nnn). For example if the total lease amount over a 5 year period is $300,000 then the tenant rep would make $12,000. ($300,000 x 4%)
Commissions Paid to Tenant Representatives on Industrial Leases
4% of the total base rent. Operating expenses (aka NNN) are not included in calculations. For example if the total base rental amount for the entire 6 year lease term is $1,000,000 then the commission would be $40,000. ($1,000,000 x 4%)
Commissions Paid to Tenant Representatives on Retail Leases
4% of the total base rent. Like industrial leases operating expenses are not included. For example if the total base rental for a 5 year lease term is $600,000 the commission would be $24,000
Overall the use of a tenant representation broker is of great value to you, however there is no out of pocket costs for you to use their services. The landlord is paying their listing agent the full commission regardless if a tenant rep is involved or not so why not have someone represent your best interests.