%20250.png?width=250&name=Navy%20(4)%20250.png "Navy (4) 250")
Renting commercial real estate isn’t just about finding a place to run your business — it’s a strategic investment in your future. The right location for the right price on the right terms can make your office more productive, improve employee recruitment and retention, and make your business more attractive to consumers — all the while helping save money on your bottom line.
But it’s not just about location, asking price and square footage. The space available and the terms of the commercial lease can affect your business in complex ways, such as:
Whether you’re renting an office, warehouse, coworking space, or some other type of commercial space, here’s what to expect from the commercial leasing process — and how to ensure you get the best space possible.
The first choice in your commercial real estate journey is whether to proceed on your own or get professional help. Many businesses start the journey working on their own, believing that they can successfully navigate a deal without a broker.
This can be particularly appealing to companies with a senior member who has experience negotiating a commercial lease, such as a VP of operations. However, this method has several drawbacks that can lead to less favorable results:
Finding the right space isn’t easy in a competitive market. There’s intense competition for available properties, which means spots don’t tend to stay open for very long. Additionally, most commercial real estate listings don’t do a great job keeping track of what spots have been filled, which means you spend a lot of time chasing dead ends.
And once you find the right spot, there’s quite a bit of work to do in negotiating the terms of the lease, planning for build-out and upgrades and other types of work (which we’ll talk about later). There’s a good chance it’s simply not worth your time to handle internally.
Brokers representing tenants find a lot of spaces and handle a lot of leases. Most companies have far less experience internally — if you have someone on staff who has negotiated one or two commercial leases in the last decade, you’re lucky.
Without the experience, you tend to get poorer results. It’s harder to negotiate terms for things like build-out and maintenance costs, and you can miss hidden costs in the contract, which can dramatically increase your rent.
A broker understands the industry better. If you’re a large company, they can help you use your leverage more effectively to negotiate favorable terms. If you’re a startup, they can help you avoid contract pitfalls, evaluate the tradeoffs between different places, and ensure you can build up your office and move in on time and under budget.
As in most industries, it helps to have connections. When your broker has relationships with landlords and other resources in the area, they can expedite the process — putting you higher on the list and increasing your chance of getting the space you want. Brokers can also help you spend less time looking for space and touring various locations.
However, despite their benefits, traditional brokers have some drawbacks as well.
As we discussed above, brokers can make the office rental process quicker, ensure the space is a good match, and help you negotiate everything from more favorable rent to parking spaces. Furthermore, an existing relationship with a broker can help you as you grow, planning future spaces or negotiating the terms of a renewal. However, traditional brokerages have their downsides too.
The traditional brokerage model focuses on large companies and deals that earn brokers bigger, more lucrative commissions. They simply aren’t built to handle a high volume of small deals — so growing companies and smaller businesses tend to receive less attention and service.
Likewise, there is potential for conflicts of interest. Brokers are often financially incentivized to cultivate exclusive relationships with certain property owners. That means they’re unlikely to act in a tenant’s best interest. Additionally, brokers working at the same company are often competing to hit internal goals — that means they’re unlikely to work together to find you the best property.
TenantBase has a different model of renting: transparent, data-driven, tenant-focused and free for renters. Each tenant who comes to our technology-enabled brokerage is matched with one of our brokers who work in a collaborative in-house team focused on getting the best deal for the tenant.
Part of the way we do that is technology — while standard real estate lists often have information that is months out of date, we enable property managers and landlords to update their listings as soon as properties are filled or new properties become available.
"Most tenant rep brokers focus on landing big clients and don't really spend much time helping the home-grown businesses that make up the fabric of our city," says TenantBase advisor Andrew Nguyen.
"Those businesses are left to work with brokers who have a responsibility to negotiate in favor of the landlords, and without anyone to look out for their best interest. We have been especially successful with helping growing businesses and startups who are trying to negotiate their first or second lease."
Typically, when people first come to an agent, they’ve already invested some time into finding office space. They’ve considered issues like budget, space requirements, possible locations, and what amenities, layout and features their organization needs. The first thing a leasing partner like TenantBase does is assign a representative to meet one on one with you, to learn your needs and priorities.
However, the role of a commercial leasing partner isn’t just to represent, but also to educate. Tenants often face complex needs that make finding the right space hard, and often requires some compromises — particularly for SMEs. Our goal is to find a strategy that will get them the best commercial rental space possible for their needs, which may mean advising them to change their strategy.
At TenantBase, our team members are used to helping business owners who have struggled to find the right office for them – for one reason or another.
"I pride myself on being able to help someone who has struggled with finding the right space through other means, either because they were not taken seriously, just did not know how to find it, or had bad representation," says Ahi Naraghi, Senior Advisor at TenantBase. "Most of my clients have had difficult experiences, and every time I'm able to facilitate a space for someone who previously has not been able to, it's satisfying."
As soon as we understand your needs, we’ll provide an easy to read list of properties that match your requirements. Once you confirm, we’ll handle the work of setting up tours with property managers. Depending on your needs, we can do an initial visit ourselves, or take you along to tour the properties.
There are several types of commercial realty that may fit your needs. Companies now have a choice between traditional and creative office spaces, industrial warehouses and a rapidly growing array of coworking spaces.
But in some cases, what the space is right now is less important than what the space could be. If the landlord is willing to give you good terms on a build-out, an industrial warehouse could make a good, fairly traditional office, for example — often with competitive prices if the warehouse district hasn’t been widely used for renting office space.
Similarly, while a coworking space does not offer much privacy if you’re just renting a desk or two, companies with extensive needs may be able to negotiate a whole floor, giving them many of the benefits of a traditional workspace, along with other benefits, like scalability.
However, as Ben Mizes points out, at a certain point companies generally want their own dedicated office. The CEO and Co-Founder of home real estate service Clever Real Estate, says that once his company started to grow, they needed to find their own space:
“Finding a suitable office space is probably one of the biggest challenges any startup will face. While incubators and coworking spaces are great for those just getting off the ground, successful startups will eventually reach a point where they'll need a space of their own to work from.
After working in an incubator for a couple months, we were looking to relocate to a larger, ready-to-move-in space that could accommodate our projected growth. We found a great landlord willing to offer a flexible lease: we’ll pay a discounted rate the first year — and as we grow into the space, we’ll pay closer to market rate. We moved in with 12 employees to the 10,000 sq. ft. office, and even with 30 employees now we have plenty of room to move: I'm anticipating we can have 100 employees or so before we'll need to find a new space!”
Mizes’ experience raises an important point: the initial tour is not just your chance to check out the space, but also to check out the landlord or property manager. If you have very particular requirements, such as being able to pay as you go for more space, you’ll need to make sure the landlord is open to them. Taking the tour can help you separate the property managers who won’t meet your needs from those who might.
After the first round of search, we'll check in with you and plan next steps. If you found commercial real estate spaces that seem like a good fit, we can narrow down the list to the top two or three and take other steps, such as scheduling a follow up office tour to inspect the property or asking the landlord questions about build-out.
On the other hand, if you decide the spaces weren't as good a fit as you thought, we can redo the search, looking for bigger or smaller spaces, different locations or other new requirements. For very specialized spaces, it can take as much as six months to find the perfect space, but generally the process goes more quickly, and you can move on to presenting a proposal within a few months.
The proposal is where a qualified tenant advocate becomes invaluable. A commercial lease is not like a rental agreement for property. The process starts with us using market data to request a price and terms on a commercial lease. The owner will then make a counteroffer, and we'll go back and forth until we find terms that suit both parties
If there’s build-out or construction, this is also a good point to meet with an architect or contractor to walk the space. If there’s build-out, you may also need to meet with an architect. If there’s construction, a contractor needs to walk the space.
As Tim Spiegelglass, Owner of the Spiegelglass Construction Company points out, it can be a good idea to meet with a contractor in any case. As a company focused primarily on small commercial retail and restaurant spaces, their clients can face big costs if they aren’t aware of flaws with their utilities.
“Our #1 tip for an entrepreneur looking to lease property is to have a General Contractor (GC) that specializes in your industry look at the space BEFORE you sign a lease. Knowing that information upfront can save a lot of time and money, and can guide negotiations with your landlord.”
When you’ve negotiated a deal that both partners are happy with, it’s time to have your lawyer read over it and sign the lease. However, your commercial leasing partner will need to iron out the terms of the lease before that happens. There are issues in negotiating a commercial lease that tenants and even lawyers without expertise in real estate can miss, such as:
Right to hold over: In a residential space, once your lease expires you automatically move to month-to-month rental. But that’s not how commercial leasing works. In a commercial lease, if you overstay your term you’ll often be subject to a hold over rate.
Hold over terms often charge you 125%-150% and can even double your rent in some cases. If you think there’s a chance you may need to stay past your original lease, it’s worth negotiating for the right to hold over at lower rates.
Operator expenses: Expenses like maintenance, real estate taxes and improvements may be paid by the landlord for the first year, but generally passed back to the tenant thereafter.
The way the lease is written can greatly affect these expenses. For example, let’s say you’re using 10% of a large commercial building, but the landlord hasn’t filled the place. If the air conditioning needs to be replaced, you can be on the hook for the whole cost or just 10% of the cost, depending on how the lease is worded.
TenantBase can help you get the best space at the best terms possible, and make sure no unpleasant surprises creep into your commercial lease, at no cost.
Contact us to get started on finding the perfect place for your business.
