Leasing retail space is typically one of the biggest operating expenses for a small business. It takes careful planning, consideration, and budgeting to find a place that meets your needs and does not too large a bite out of your budget. To help you guide planning to rent a retail space, there are few things that you need to know and how much it costs.
You have to do an extensive review of what you can or what you can’t do with space you’re leasing and get some solid figures from building owners and/or management companies. Identify the high end and the low end of other retail rents in the area where you want your store to be and start by looking at vacant properties in the area you want to open your retail store. Most areas have an average price per square foot.
For example, a store in a popular shopping center located directly in front of a busy highway may run $23 per square foot. So for 1,900 square feet, that would cost approximately $3,642 per month. A similarly sized stand-alone building located one-half mile from that store may only be $11 per square foot.
[Total Square Feet x Price per Sq Ft. ÷ 12 (months) = Monthly Rent]
Another big consideration is the type of lease terms you will be getting. Lease terms vary from state-to-state but are often 1-5 years in duration. Long-term lease terms can be daunting, especially if you are just starting out. The majority of lease agreements require a tenant to pay the rent whether their business survives or not, so it can help to be conservative and negotiate down your lease duration. However, do note that a shorter lease duration can increase the lease base rate, depending on other considerations.
Most landlords in a commercial space like retail will pass along their costs of doing business to you as part of the lease agreement. Typically, a landlord will charge you for CAM (common area maintenance) which is the landlord’s costs to maintain the parking lot, lighting etc for the center you’re located in. In addition, landlords will pass along the cost of the property taxes for space. It is also common for the landlord to ask you to pay the insurance premium for your space. While you may (and should) be required to carry insurance for your property located in the space, the landlord carries a policy to protect him from damage to space while you are leasing it. The cost of this premium can be passed along to the lease.
If you have a lease with all three of the costs, this is called a “triple net” lease. This refers to the fact that your lease is the base rent, plus CAM, plus Insurance, plus Taxes or net of the basic rent. Make sure you are very careful in investigating this condition for leases in your area. It is more common than not for a landlord to use a triple net system.
This means that your rent from our example ($3,642) could actually be an additional $3-600 per month. That is a significant number! Be sure to estimate the cost of utilities, maintenance, your property insurance or fees and possible rent increases. Landlords will generally try and work into the lease an annual increase in rent based on the consumer price index or some other measure. These are also called escalations and should be fully understood before entering into any lease.
Are you planning to lease a retail space to match up the best commercial location for your business? Please do not hesitate to leave your inquiry or comments below.
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