When it comes to viewing commercial property, whether that be office space, retail space, or warehouse space, it’s important to ask the right questions in order to make an informed decision about whether the property is a good fit for your business. Here are some key questions to consider when viewing commercial property.
How Long Has The Space Been Vacant?
In some situations if a commercial space has been vacant for a long time the landlord maybe more negotiable on the lease rate and terms. Every month that goes by the landlord is not receiving any rent on that space. You want to capitalize on that as much as you can.
What is the Property’s Zoning Classification? Is it Suitable for the Intended Use?
Always check with the city to ensure the space you are interested in is properly zoned. In addition you have to confirm that your particular “Use” is appropriate as well. Just because the zoning meets the city’s requirements does not mean your particular “USE” will work.
For example, let’s say you are in the fitness business and a commercial property you are looking at is zoned for retail. The previous tenant was a pet store and they have a certificate of occupancy for that “Use”. Because your “Use” is different you would have to apply for a permit to have the “Use” changed to fitness.
What Type of Commercial Lease Does the Landlord Use?
The type of commercial lease used will determine who is responsible for what and how your monthly rent will be calculated. It’s important to know what expenses the tenant will be responsible for and what expenses the landlord will be responsible for.
For example in a full service (aka gross) lease the tenant pays a single monthly payment to their landlord and that includes all expenses such as taxes, insurance, common area maintenance, electric and janitorial services.
In a triple net lease (NNN) the tenant pays a base rent plus the estimated operating expenses which include taxes, insurance and maintenance.
It’s important that you understand what you are responsible for so that you can make an apples to apples comparison of each commercial property you tour.
What is the Minimum Lease Term?
Most landlords are going to require a 3-5 year lease term especially if a space has a lot of interest and/or needs a lot of tenant improvements. If you are a startup or growing company it might make more sense to stick to touring only those commercial spaces that are open to lease terms shorter than 3 years.
Just keep in mind that while shorter leases allow you to be more flexible, don’t expect to receive a lot of concessions such as free rent or tenant improvements allowances. The longer the lease the more negotiating power you have.
How Does the Landlord Intend on Delivering the Space?
What condition is the space in now? Is nice and move in ready or does it need a ton of tenant improvements? You want to get an idea about how the landlord is going to deliver the space. Are they going to give a tenant improvements allowance or are they going to turnkey 100% of what you ask for?
Does the Building Have Any Amenities?
Is there a fitness center, building conference room, onsite deli, or other amenities that you and your employees have access to? If so are they included in the cost of your monthly rent or is there an extra charge?
How Many Parking Spaces Are Allotted to the Space?
Most office buildings have parking ratios of 3 to 4 per 1,000 sf. What that means is for every 1,000 sf that you rent you will have access to 3 to 4 parking spaces. Medical office buildings typically have parking ratios of 4 to 5 per 1,000 sf. Some commercial buildings have more flexible parking situations or have nearby street parking that would allow you to park a few more people.
If you plan on growing your headcount throughout the duration of your lease term be sure to communicate that to the landlord rep and focus only on buildings that can accommodate your current and future growth and parking needs.
Who is the Landlord?
Different landlords negotiate differently depending on the size of the property or their portfolio. Institutional landlords typically have the funds to provide tenant improvement allowances. They will also typically be more professional with a property management team behind them. Individual owners can sometimes be harder to work with. They won’t typically have cash reserves for tenant improvements which means you will have to pay for those yourself. You can propose to receive some free rent in return for you paying for improvements.
It’s also important to know their investment strategy as that will determine how negotiations will go. If they are trying to sell or refinance the property then they probably won’t be motivated to lower they rate however may give more in tenant improvement dollars or free rent. If they are a long term holder and cash flowing the property they maybe more motivated to give a lower rate and less TIA.
Other Questions To Ask When Touring Commercial Property
If you are not familiar with the marketing you are looking at commercial property in or do not do many commercial lease transactions then consider hiring a commercial real estate broker to help you. Their services do not cost you anything and you will typically save a ton of time throughout the process since they do all the heaving lifting.