Leasing Commercial Space – Create a Monthly Budget and Stick to it!

commercial real estate space budgetWhen leasing commercial space businesses need to have a budget and stick to it! I see too many businesses spend more money on rent than they should or that they can afford. For example they will tell me that their maximum budget is $7,000 per month and then they will ask to see commercial spaces that are in the range of $10,000 per month.

Of course everything is negotiable however in a strong commercial real estate market if a landlord is asking for $40 sf in rent they are not going drop their rates to $25 sf. 

There is no point in looking at spaces that are WAY more expensive than you can afford. Unless you are able to increase your budget you will be wasting a lot of time and effort. You need to create a proforma that has your sales projections for the next 3-5 years which will be the commercial lease term you end up having to commit to. Most industries have an average commercial rent to sales ratio that helps them determine their maximum commercial rent amount. If you purchased a franchise the franchisor will be able to tell you what the ideal monthly rent should be. Once you determine the maximum monthly rental amount go look at only those commercial spaces that fall within that range. You may see a few spaces that you absolutely love and that are way over your budget, however don’t talk yourself into thinking you can make it work. Your numbers don’t like so you want to stick to those. Remember that most businesses go out of business within the first few years of being open. You will be one of the statistics if you don’t stick to your commercial rent budget.

Ideally most businesses would want to keep their rent to gross income percentage of about 10% or below. In the restaurant industry this should typically be 5% to 8%. If your business has low gross profit margins then you would want to maintain a lower rent percentage so you can be profitable. 

Leasing commercial space is one of the largest expenses you will have as a business owner or company. Whether you are renting medical office space, warehouse, retail, or office space it’s so important that you have a business plan and create a budget that makes sense for your business. Once you have that budget stick to it!

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