Should you buy or lease a commercial property?
No standard forms. Many commercial leases are not based on a standard form or agreement; each commercial lease is customized to the landlord's needs. As a result, you need to carefully examine every commercial lease agreement offered to you. Long-term and binding. You cannot easily break or change a commercial lease.
How to get the best deal on a commercial lease?
Feb 17, 2022 · For example, office space in downtown Dallas ranges from $11 to $21 per square foot per year on Loopnet. If you’re looking for retail space in Albany, New York, expect to spend $10 to $20 per square foot per year, Loopnet’s listings show. For …
What should I look for in a commercial lease?
Jan 04, 2020 · Determine any ‘extra’ rental rate such as NNN fees, MG fees, or your percentage of gross sales. Add everything together to calculate your total rent rate. Multiply your total rent rate by the square footage charged by the landlord. Divide the total by 12 to calculate the total monthly cost of your commercial rent.
How to get out of a bad commercial lease?
What does $15.00 SF yr mean?
Rates. Most commercial lease rates are quoted in annual dollars per square foot. Example: $15/SF In most cases (at least on the east coast of the US) this means you will pay $15.00 per square foot per year.
How are commercial leases structured?
There are three categories of leases when it comes to commercial real estate: Gross Lease (also known as Full Service Lease), Net Lease, and Modified Gross Lease. The main similarity among these leases is that they all provide a base rent with variations around who pays for which operational expense.Jan 11, 2016
What are the 3 main types of lease?
The three main types of leasing are finance leasing, operating leasing and contract hire.
What is the most common commercial lease?
Triple Net LeaseA Triple Net Lease (NNN Lease) is the most common type of lease in commercial buildings. In a NNN lease, the rent does not include operating expenses. Operating expenses include utilities, maintenance, property taxes, insurance and property management.Apr 19, 2016
How long is a commercial lease?
The standard commercial lease term is between three to five years. Longer lease terms may be beneficial if you as the tenant need to spread out the expense of tenant Improvements paid for by the landlord that need to be reimbursed to the landlord. This will provide a longer period to pay this expense back.
Is a lead the right fit for a commercial property?
In an ideal world, your first lead is the right fit for your commercial space. However, this is rarely the case. Know your own business needs and match the property to these needs, including location, neighboring businesses, and proximity to major highways.
The Benefits of Commercial Tenants and How to Negotiate a Good Lease
Jim Kimmons wrote about real estate for The Balance Small Business. He is a real estate broker and author of multiple books on the topic.
The Benefits of Commercial Tenants
Investors with only residential single-family rental properties often hesitate to get into commercial leasing because it's more complicated, but it can be well worth the extra education.
Percentage Leases
It's common for a landlord to determine a base rent that he absolutely needs in his commercial lease calculation, then have the tenant pay a percentage of its retail gross income in addition to this base rate. 3 Retail sales should rise and enable the tenant's ability to pay higher rent if the location is a good one.
Percentage Over Base Amount
The tenant pays a minimum base monthly rent in this case, then adds a percentage of all gross receipts over a certain base amount. For example, base rent might be $1,000 per month, plus 5% of all gross receipts over $50,000 per month.
Percentage of Gross Receipts
We don't set a bottom-line revenue before the percentage kicks in with this option. Rent is paid on all gross receipts from zero. For example, the tenant might pay $500 a month in base rent, plus 2% of gross business receipts. Using the same numbers as above, the calculation works like this:
How are commercial leases different from residential leases?
It's crucial to understand from the get-go that, practically and legally speaking, commercial leases and residential leases are quite different. Here are the main distinctions between them: 1 Fewer consumer protection laws. Commercial leases are not subject to most consumer protection laws that govern residential leases -- for example, there are no caps on security deposits or rules protecting a tenant's privacy. 2 No standard forms. Many commercial leases are not based on a standard form or agreement; each commercial lease is customized to the landlord's needs. As a result, you need to carefully examine every commercial lease agreement offered to you. 3 Long-term and binding. You cannot easily break or change a commercial lease. It is a legally binding contract, and a good deal of money is usually at stake. 4 Negotiability and flexibility. Commercial leases are generally subject to much more negotiation between the business owners and the landlord, since businesses often need special features in their spaces, and landlords are often eager for tenants and willing to extend special offers. (For information on negotiating the terms of your lease, see Commercial Leases: Negotiate the Best Terms .)
Can you break a commercial lease?
Long-term and binding. You cannot easily break or change a commercial lease.
Is commercial space a responsibility?
Renting commercial space is a big responsibility -- the success or failure of your business may ride on certain terms of the lease. Before you approach a landlord, you should understand how commercial leases differ from the more common residential variety, and before you sign anything, make sure you understand and agree with the basic terms ...
How many types of leases are there for commercial space?
There are three major types of leases for commercial space. You’ll want to consider the needs of your business and what the landlord is offering to determine which is best for you.
What is net lease?
Net leases: These call for expenses such as maintenance, taxes and insurance to be shared between landlord and tenants. There are three types of net leases: single, double, and triple. Single net has the tenant pay property taxes. Double net adds insurance.
What is commercial space?
Commercial space may be described in terms of rentable square feet (RSF) or usable square footage (USF.). RSF, the most common measure, includes a share of common areas such as restrooms, hallways, and lobbies. USF consists of just the square footage of the space you’ll occupy.
What is a good commercial real estate broker?
A good commercial real estate broker is an important part of the way most businesses lease commercial space. The broker will both explain the process and provide local information about what’s available. After all, knowing how to find commercial property for lease can be difficult.
Why is foot traffic important in retail?
For a retail location, foot traffic may be important. To make it easy to keep your employees, you may do a drive time analysis from their homes to the office. Transportation: How easy it is to get to and from your location will also be important.
Who is Andrew Helling?
Andrew Helling is the founder and editor of REthority.com. He graduated from the University of Nebraska at Omaha where he obtained a Finance and Banking degree. As a formerly licensed real estate agent and property manager of 500 single-family homes, Andrew knows real estate.
What is modified gross lease?
Modified gross leases: Modified gross leases parcel out some expenses to tenants while the landlord takes care of the rest. Tenants may be allocated cleaning, utilities, or some repairs, for instance. All lease terms are negotiable, of course.
How long does a commercial lease last?
If you're not looking for a 10-year lease, find someplace that offers a shorter term of three to five years.
What do landlords provide for tenants?
Ask about available amenities for tenants. According to All Business, some landlords provide remodeling services, free parking spaces, or a moving allowance to new lessees. These useful perks save time and money when developing a new site or business.
1. A Standard Property Marketing Flyer
The first thing that your firm should provide is a flyer or brochure. These are usually designed in the leasing firm’s standard flyer template.
3. Broker Email Campaign
In order to actively promote your property and keep the listing top of mind amongst the brokerage community, your leasing firm should also execute an email campaign for your property.
4. Leasing Sign at Your Property
Even in the age of technology, we can’t forget the impact of traditional marketing. What better way to tell the world that your property is available for lease than a physical sign on the site?
5. Listing on Commercial Real Estate Listing Sites
Your leasing firm should update and maintain your property listing on prominent commercial real estate listing sites like CoStar. These sites are a broker’s first stop when searching for available spaces for their clients.
7. A Virtual Tour
A virtual tour allows prospective tenants and tenant rep brokers to tour a space on their computer or mobile device.
What is percentage lease?
Percentage leases are usually used for renting retail space in a large shopping mall or for anchor tenants in a large commercial property. A percentage lease has a lower base monthly rental fee but also collects a percentage of your gross monthly sales.
What is a full service gross lease?
Full service gross leases are basically the rent paid for occupying the space. The landlord covers all property operating expenses, including taxes, insurance and utilities. If the size of the space you’re renting is 1,000 square feet and the rent is $12 per square foot per year, then your commercial rent is:
What is load factor?
The percentage of common area space in the building that is factored into your lease payment. For example, if a 100,000 square-foot office building has a 10,000 square-foot lobby, the load factor is:
What is triple net?
Triple Net (NNN) The three ‘nets’ of a triple net lease are: property taxes, property insurance, and common area expenses (sometimes called CAM or common area maintenance). With a NNN lease you’ll pay a base rent plus all of the triple net extras. So, if you have a 1,000 square-foot space that rents for $8 per square foot per year and ...
Does modified gross lease include NNN fees?
Modified gross leases don’t include all the NNN fees. The only additional charge you pay for with a MG lease is utilities. For example, if you’re renting a 1,000 sq. ft. space and the modified gross rent is $10.00 per square foot per year, your rent would be:
Business
Effects
- Commercial rental properties include shopping malls, professional offices, strip centers, and free-standing buildings used for offices and retail space. Successful businesses are reluctant to change location unless more space is needed. Capturing a good tenant in an office or retail space can mean years of dependable rental income and positive cash flow. This is especially true if sp…
Types
- Depending on the type of lease, the tenant often pays for repairs and improvements. They take care of the property, as they have customers on site. They want them to have a pleasant experience so they'll return. There are very different lease types, and they often are based on the type of tenant business. Let's look at these lease types, how they work, and how they're calculated.
Definition
- Rent is set at $xx.xx per square foot of the leased space. This can be expressed either as an annual or a monthly amount.
Sales
- Retail volume can vary significantly due to many factors, including the economy and also location. For this reason, it is a common practice for a landlord, in their commercial lease calculation, to determine a base rent that they absolutely need, and then to have the tenant pay a percentage of their retail gross income in addition to the base rate. This is logical because, if the location is a g…
Example
- 1. Minimum base rent + percentage over a certain base amount: In this case, the tenant pays a minimum base monthly rent, and then adds a percentage of all gross receipts over a certain base amount. Example: $1,000 per month base rent, and 5 percent of all gross receipts over $50,000 per month. Using one month's gross receipts of $72,000, we do the ...
Use
- The negotiation of rent for a commercial space can get quite complicated. The prospective business tenant knows their costs of doing business and anticipated revenues. They will want to fit rent into their costs such that they can count on a certain level of profit. The property owner knows their costs of ownership and what they need to get for rent to assure a positive cash flow…