After some 20 years of leasing commercial real estate, I have realized that most tenants seeking new space have very limited experience with the commercial leasing process. Navigating this process can be a daunting and arduous task particularly if you are unfamiliar with industry terminology and market norms. In an attempt to demystify the process, the following article may serve as a “beginners guide to commercial leasing”. 

The space that your business occupies, whether its retail, office, industrial or medical is one of the most important assets of the company. The cost of leasing can often account for as much as 25% of your overall operating costs and choosing the wrong space can often cost your business much more. The location, look and layout of your space can affect customer’s/client’s perception of your business as well as the efficiency and productivity levels of your employees. Given that most people spend more time at work than they do at home, choosing the space your business occupies is clearly an extremely important decision.

Whether you are seeking new lease space, downsizing, upsizing or simply relocating, the first step is to determine the amount of space necessary to efficiently run your business and what the general configuration of the space should be. This is one of the most crucial steps in the leasing process. For instance, I once worked with an office user who insisted they needed no less than 15,000 SF of space even though a brief walk-thru of their current space revealed glaring space inefficiencies. When all was said and done (and with the help of a good space planner) they miraculously fit into 8,000 SF thereby saving them over $115,000 per year. The use of a space planner during this phase is crucial and some landlords will even provide a free “test fit” as part of the negotiation process. If not, the cost of the service is money well spent as it could potentially save you thousands of dollars down the road and can help you design a space that facilitates your work flow and the morale of your employees.

The next step is to determine the ideal location for your business. Location considerations include, customer and employee convenience, distance to services utilized by your company, visibility, ease of access and parking availability. For example, a medical practice may need to be within a certain distance of a local hospital but must also determine where most of its patient base is located in order to chose the optimal location.

The next and last step before actually looking at space is to determine your leasing budget. Where you finally decide to locate the business will depend greatly on your budget. When determining budget it is important to include all of the components of leasing a space, not just the base rental rate. Other expenses can include: utilities, building expenses, parking and janitorial fees. Lease structures can vary greatly from building to building depending on how they are managed and how they are physically configured. For this reason, it is important to fully understand what is included in the advertised lease rates and what additional costs will be incurred. Landlords may use terms such as “NNN”, “modified gross” or “gross” to describe a lease structure. In short, a NNN lease requires the tenant to pay its pro rata share of building expenses over and above the base lease rate plus all of the utilities associated with the space. Generally speaking a modified gross lease includes the building expenses but requires a tenant to pay its own utilities. Which utilities tenant is required to pay under a modified gross lease can vary from building to building depending on several factors including whether the utilities have been separately metered for each tenant. A gross lease includes all building expenses and utilities and in some cases can include other additional amenities such as parking.

Armed with your optimal space requirement, your preferred location, a budget and a general understanding of the possible lease structures, you are now ready to start kicking some tires. The easiest and best way to begin your search is to hire a local commercial broker. The commercial broker will have access to most of the available properties in the area you have chosen and can provide you with an inventory of options that fit the criteria identified in the first three steps of the process. As your agent, a commercial broker will help you navigate through the research and negotiation phases of the process and will work specifically with your best interests in mind.

Leasing commercial real estate can seem over whelming and confusing at first, but once you have completed these simple steps and hired the right commercial broker, the process can actually be a smooth one. The result will be a well planned and well thought out lease arrangement that will help your business reach its full potential.

-Frank O’Connor and Katie Allen