Tips for renting commercial space
Inspect properties and landlords before picking your small business's new commercial property.
Selecting a commercial location for your business may be one of the most important decisions you make. While the nature of your business often dictates your specific location, it's smart to have a sense of where you want to operate.
Researching commercial space
There are many factors to be considered when searching for the right commercial space for your business: demographics, location, cost, competition, zoning, and landlords. It helps to not commit after the first sales pitch or get attached to a property too soon. You could end up over budget or locked into a bad lease. To find the right fit, give yourself at least six months to complete your initial search. Consider several properties, and focus on the following criteria when determining your business location:
Consumer demographics. Do you cater to a certain clientele, such as families with young children? If so, the U.S. Census Bureau's American Fact Finder database has community and household characteristics by ZIP code1 that will help you identify prime areas. You can also check the Competitive Intelligence Tool and the U.S. Bureau of Labor Statistics databases to see if your area includes your target demographics.
Competition analysis. Finding a good location without competition is close to impossible. Instead, pick a property with complementary businesses nearby or competitors from which you differentiate yourself. If you run a clothing boutique, for example, locate near a tailor or a dry cleaner. If your small coffee shop is close to a national chain store, offer local and homemade products that set you apart.
Cost calculation. The proposed rent alone doesn't account for the total cost. Ask who bears utility costs, taxes, and other fees, such as the common maintenance fees typically associated with strip malls and office complexes. Consider who will bear the cost of renovations, too. Sometimes the landlord will contribute to the cost of renovations, or include the cost in monthly lease payments.
Zoning. Don't take the landlord's word that a property is zoned for your business or that the property complies. For example, your intended use may require additional parking. Verify with your county assessor.
Vet the commercial space's landlord
Legally, commercial landlords don't have to disclose as much information as residential landlords.2 You might not be told a property is being foreclosed upon or if it is involved in a lawsuit. Follow these steps to screen potential landlords:
Talk to current tenants. "Word of mouth is often the best way. Knock on the doors of existing tenants, and ask about their relationships with the landlord," says Jonathan Feld of Speedwagon Properties.
Search online. "There are a lot of places to check online: blogs, Facebook, social media," says Larry Lund, principal of Real Estate Planning Group in Chicago. "Sometimes you have to take that information with a grain of salt, but you can also learn a lot." Also check for complaints filed with the Better Business Bureau.
Work with a commercial office space broker
Brokers are local market experts who have experience with area landlords, and can alert you if your landlord has a poor reputation. "Business owners have a lot to gain by utilizing a broker who has intimate knowledge of the local market and the nuances of properties and landlords," says Feld.
Beyond vetting a landlord, brokers can show spaces you wouldn't find on your own, help you pick a property with the right demographics, and secure concessions from the landlord. But brokers aren't lawyers. Check their references, and make sure your attorney negotiates your lease and interprets all legal documents.
As you look at potential locations, assess each one thoroughly with these factors in mind. Careful consideration now will help position your business for success in the future.
1 "Getting the Dirt on Your Market." Inc.com.
2 "Commercial Landlord Tenant Law." Tenants Legal Center of San Diego.