Searching for a retail space

One of the first steps to leasing a location is actually finding one that suits your business needs. In this post I will talk about the ways you can search for a suitable retail space and provide some tips on spotting locations others may miss.

Surveying your area of interest

Of course one the first steps most people will take is to get in the car and spend some time canvassing the area of interest for your new retail location. While canvasing the area you should be looking for "for rent" signs on mall lawns or above spaces and locations that look vacant or have their windows covered with paper. It is important that you note not only the number to call for the vacancy but the name of the management company as well, this will be useful to help you search for a space once canvassing is done.

It is important to realise that even if you do not see a vacant space it does not mean there isn't one that will be available shortly. Usually a Lease requires you to notify the Landlord many months in advance if you will not be renewing, so most proactive landlords will put up a sign and start trying to lease the space long before it is actually empty. If you see a for rent sign at a property with no vacancies call them anyways, its there for a reason.

Online Search

This is of course a logical option and can be useful but if you use this method exclusively you are putting yourself at a disadvantage. While you can get many leads for spaces with a small amount of time invested by looking through online commercial real estate listings, it is important to note that not all spaces get listed on the Internet. While many landlords and management companies are tech savvy, there is still a huge amount of them that are not and do things "old school". That means they use "for rent" signs and commercial real estate brokers to market a space.

While doing your online search for a space do not rely strictly on real estate listing sites. Those names of management companies you wrote down while canvassing will come in handy at this point, as most of them have company websites that list what spaces they have available to lease. This is very useful as you may find many spaces that are not listed on a multiple listings type website.

Commercial real estate brokers

Brokers can be a huge help in finding a location for you. Brokers have many tools at their disposal but also many brokers get notified by landlords/management companies they have a relationship with, as soon as a space becomes available and due to that can have some great leads for you.

Using brokers to find and lease a location for you can have many advantages but whether you want to go down that path or not bears some thought because this can on occasion be a liability too. The fact that commercial real estate brokers have their commission tied to you signing a lease deal for the space, they can be too eager to have you sign or provide advice that may not always be to your benefit just so they can close a deal. Like in home buying you will find good honest brokers that truly care about their clients and hacks that only care to close a deal and move on, so reputation and good referrals are critical in choosing to go with a broker.

Contacting management companies and landlords directly

Many property management firms and landlords are huge and have portfolios consisting of millions of square feet in commercial real estate. It is often useful to contact their leasing agents directly and tell them what your needs are, odds are they may have a space for you.

A good idea would be to call the leasing agents of the companies you wrote down while canvassing your area of interest. Chances are they have many more retail spaces in the area and may have something that suits your needs that you missed.


Important Note

When you are looking at spaces do not immediately eliminate a location if it a lot bigger then you need, because if the deal is good enough the landlord may be interested in splitting a space for you. I have seen this done many times and this option becomes much more viable if you are looking for a long term lease or at a premium location with very high rents. In essence if the potential lease deal is worth a lot of money, the cost of splitting up a larger space may be quite worth it to get you in as a tenant.



This concludes the section for searching. Next up, tips on what to look and look out for in a retail location you may be considering.

Leasing terminology and concepts

So you've decided to take a chance and finally go for that dream of opening your own business. You have this great idea, business loans ready and all that is standing between you and guaranteed success is finding the right retail space to lease. Well not so fast. Finding the right retail space to lease, negotiating a fair price and making sure you get the space you deserve can be a harrowing experience with many twists and pitfalls along the way.

This first post will try to familiarise you with some terminology and concepts that you will come across when searching for a new retail space location.


Leasing terminology and concepts

When dealing with a commercial lease there are certain terms and definitions you will need to understand as they are critical in assessing weather you are getting a good deal or not.

• CAM - Stands for Common Area Maintenance fees. This most closely resembles Condo fees in the residential housing. CAM fees are your proportionate share for the upkeep of areas at a commercial property that serve all tenants (ex: Parking lot, shared electrical room, lawn) This will include exterior lighting, parking lot repairs, snow removal, landscaping, garbage removal and anything else for common use. CAM fees are quoted on a $ per ft² per year basis.

• NET LEASE - Net lease is a type of commercial lease that generally stipulates that the Tenant (meaning you) is responsible for all repairs, upkeep and replacement of everything inside your space as well as any equipment servicing your space exclusively (ex: electrical entrance, HVAC unit). Net leases are generally the standard for retail spaces in strip malls or mixed use commercial properties. What you must realise is with this kind of lease you will be on the hook for everything that is not part of the building structure, which is almost everything except the roof and load bearing walls.

• GROSS LEASE - A gross lease is a type of lease that generally stipulates that the Landlord is responsible for all major repairs and maintenance of the leased space. This type of lease is more commonly seen in office buildings and unless you're leasing office space you will be hard pressed to get a Landlord to offer you this kind of lease.
  

• TI - Stands for Tenant Improvements and this is an industry term for an amount a Landlord is willing to offer you as part of the lease deal to do improvements on your new space. This is usually offered on larger deals or longer term leases as an incentive.

• RENEWAL OPTIONS - This concept describes the practice of including in the lease an option to renew the space at the end of your lease term. The reason this is important is having an Option in your lease insures that you will be able to hang on to your retail space when your initial lease expires. Without this the Landlord is not obligated to renew you at the end of your lease. Having renewal options also has an added benefit of improving your chances of selling your business should you decide to do so down the line.

• Capital Expenditure - This is a term that deals with large improvements to the whole retail center you occupy. Roof replacement, facade upgrades, large parking lot repaving projects can all fall into this category. It is important to understand that CAPEX are usually very big amounts and sometimes the Landlord will try to offload all or part of this cost onto its Tenants.
  

• CPI - Consumer Price Index. This is often included in the lease to adjust your future rent to compensate for inflation.

• SECURITY DEPOSIT - Landlords will almost always ask for a deposit from a Tenant that does not have previous proven retail businesses or history. The less solid your company or personal finances are the more will be asked of you as a way to guarantee against their losses in case something should go wrong. Do expect to get asked for one if it's your first business. The amount asked usually equates to several months rent and can range from 1 month rent to 6 month or more depending on the deal. This money is returned to you at the end of your lease when you move out and fulfill your all your obligations stipulated in the lease.

• OFFER TO LEASE - It is important to understand the difference between an Offer to Lease and an actual Lease. You will receive an offer to lease during your negotiations process and will end up signing it should you decide to proceed with leasing a space but this is just an offer. You will still have to sign a final lease which will dictate your relationship with the Landlord for the duration of your stay. Do not mistake the two, as your final lease may sometimes vary from the offer you sign.

This concludes the sections on terms and concepts. There will of course be many of these that you will come across that are not mentioned here but this will give you a good head start.

In my future posts I will do a step by step walk through of the processes of renting a retail space from searching for a location to building it out and taking possession.

Introduction

Yesterday was my last day as a commercial real estate property manager, I have spent the last two years overseeing over a million square feet of commercial real estate. Most of these were strip malls with a lot of small retail tenants and national franchises.

It is safe to say I will not be returning to this field. Real estate is a dog eat dog business and definitely not for the weak of heart. I wanted to write this blog while my experiences of the past two years are still fresh in my mind as a sort of public service. In the last two years I saw time and time again, first time business owners getting into a load of trouble and costing themselves a lot of money because they did not have enough knowledge about the workings of real estate leases and concepts.

The the lease you sign and the deal you make for your retail location can make or break your business. The rent, the upkeep costs, the renewal terms and liability can have a huge impact on the bottom line of your new business. I will do my best to give you insider knowledge, tips, tricks and expertise to help you get the most out of your future Landlord while minimizing the risk to yourself.

If you are reading this odds are you are well on your way to starting your own small business and I wish you prosperity as well as continued success for years to come.