Finding a retail space for lease
Finding a retail space for lease can be challenging, especially given that the wrong move can have catastrophic consequences for your business. Competition for the best location is high, so you should be prepared to make some concessions for elements that aren’t deal-breakers. The process of finding a retail space to rent will be less frustrating if you have a solid plan that includes your objectives and must-haves.
Due to immense competition, the retail for lease business can be filled with unscrupulous characters. This ranges from those who post fake listings to people who make false promises. Therefore, it’s important to identify the best way to find a retail space for lease. As renting a retail space will be one of your highest business operational costs, it’s advisable to take as much time as possible to plan for obtaining the best rent space. You’ll need to consider the following factors when looking for a shop for rent:
- Convenience – You should expect to pay more for a lease if a shop for rent is located in a convenient place that includes other shops, parking, etc.
- Location – A location with high foot traffic will be on everyone’s wish list when looking for a retail space for rent. This is the reason that renting spaces in popular shopping locations will increase the cost of the lease.
- Term of lease – Taking out a long lease (over a year) may put you in a better position to negotiate on the price.
- Rental condition – The more work you have to do to the space (in terms of remodeling or renovation), the less you’ll have to pay. Get ready to pay more if the rental space is in a condition that enables you to move in straight away.
- Competition – If there’s a lot of interest in the shop for rent that you have your eye on, it’s likely that the person who offers the most for the lease will secure the property.
Now that you’re aware of some additional factors that can affect the rental space you secure, here are six steps to finding a retail space for lease:
- Familiarize yourself with the various types of leases
- Work out the size of the shop you’ll need
- Decide on your budget
- Identify the right professionals to help with your search
- Narrow down your retail shop options
- Assess your lease
There’s no such thing as a one-size-fits-all lease. Different landlords will offer variations on a standard lease. The key distinction between leases is the costs that each party are responsible for.
Here are some leases offered by landlords with shops for rent:
- Single Net Lease – You will be responsible for paying property tax and utility bills. The landlord is liable for all other costs – for example, insurance.
- Double Net Lease – With this lease, the property taxes, utilities, and insurance are your responsibility. The landlord has to pay for maintenance.
- Modified Net Lease – Expenditure is equally divided between you and the landlord.
- Triple Net Lease – You’re most likely to be presented with this lease because it’s the most common type. A triple net lease states that you’ll be accountable for most of the expenses while the landlord will only be responsible for structural repairs.
Settling on the size of the retail space requires you to consider your current needs as well as your future growth. This could be a tricky balance to strike as you don’t want to pay for too much space but, at the same time, consideration needs to be given to whether you’re willing to relocate when your business grows.
Every business is different in terms of the space they require, but the following areas are common to retail shops:
- Sales floor
- Dressing rooms
The formula for working out how much sales per square foot you’ll need is:
Sales Per Square Foot = Sales / Square Feet of Selling Space
Sales per square foot is an important metric to help determine the health of your retail business. This calculation could provide proof of your business’s viability should someone consider buying your business in the future. Getting the sales per square feet right will have implications for leasing a retail space and a potential future sale price.
The retail space for rent that you’ll acquire will be determined by how much you have to spend. Apart from the monthly lease base rate and, depending on the type of lease you get, the following expenditure should be catered for in relation to your budget:
- Insurance – You’ll need to cover your business for eventualities, like natural disasters and theft. The cost of insurance for a retail business varies widely and is normally worked out in relation to the size of the shop.
- Property taxes – The amount you’ll pay in property taxes will be dependent on your state.
- Utilities – Budget for the utilities that will be used in your business, including heat, water, sewer, and internet.
- Shared amenities – You may need to factor in costs for common area maintenance such as security, parking, and fire prevention.
- Remodeling – The shop for rent may be completely empty, so you’ll need to budget for interior design and visual merchandising.
It’s recommended that you allocate 3% to 10% of your gross monthly sales to lease payments. Here are some examples of how much different retail stores spend on rent:
- Electronics and appliance stores – 2.09%
- Food and beverage shops – 3.21%
- General merchandise stores – 3.86%
- Food and drink establishments – 5.81%
- Clothing and accessory shops – 7.66%
Take the annual cost of rent and divide it by your gross annual income to work out how much of your profits will be allocated to the payment of your lease.
To help reduce the overall costs of leasing a retail space, think about leasing equipment and furniture. Not only will this keep the initial costs down, but it may also be easier to obtain financing. You should also consider using low-cost tools to help run your business after you’ve secured your lease. For example, Deputy’s workforce management software helps you to schedule your retail staff at a low cost. It’s never too early to start thinking about how you’re going to manage your staff. Book a demo today to see how Deputy’s cost-effective and efficient workforce management solution can help you when your retail store is up and running.
You can search for a retail space for rent yourself. However, because of the high stakes involved, you may want to enlist the services of a commercial real estate broker.
Here are some tips if you choose to go it alone:
- Use free online commercial brokerage sites, like LoopNet, to find shops for rent.
- Google “retail space for rent” in your local area to explore your options. You should exercise caution with this approach, especially if the listings aren’t with a reputable commercial property agency.
- Sign-up to a subscription site that provides a detailed analysis of important information such as demographics of the area. Subscription sites can be expensive – the costs range from $300 to $1000 per month.
- Ask people you know about retail shops for rent. Your network may be aware of rental properties that aren’t advertised with the big agencies.
If you decide to use a broker to help you secure your retail space, remember to account for their fee in your budget. Brokers normally charge 7% to 10% of the total lease cost. The advantages of using a broker are that they:
- Have more contacts, so they’ll be aware of more rental properties.
- May have better negotiating skills and could secure a better price for your rental space.
- Can access commercial property subscription-only sites, which aren’t available to the public.
If you choose to use a broker, use your state’s realtor association or the National Association of Realtors to find a reputable broker.
When you’ve found potential spaces or have been presented with options by your broker, it’s time to focus on what you really need to eliminate rent spaces that aren’t the right fit. Ideally, the shop for rent you choose will be:
- In a safe area – It will be difficult to attract the right customers if your business is in a high crime area.
- Near your competitors – Having a location near to your competitors means that your ideal customers already shop in the area, so they’ll be interested in what your retail shop is offering.
- Close to major highways or public transport – An accessible retail shop removes a barrier to consumers visiting your shop.
- Next to comparable businesses – Retail stores, like shoe stores and apparel shops, complement each other. Ideally, your store will be located in an area with other shops that offer complementary products to your items.
Although there may be a temptation to rush the decision-making process to choose a rental space, it’s best to take as long as you possibly can to make an informed choice. There will understandably be pressure for you to make quick decisions in areas where there’s a great amount of competition. But it’s better to take the time to get the right rental space than risking your business if you make the wrong call.
After you’ve settled on a retail space to rent, you should be prepared to enter into negotiations to secure the best deal for your business. A lease is a legal contract and it’s recommended that you use a commercial real estate lawyer. Your lawyer can advise you about what different clauses mean and whether there are any provisions that could be detrimental to your business. You can check your state’s bar association to find a lawyer or you could ask other business owners for recommendations.
Your broker can also make a recommendation for a lawyer. Some brokers have agreements with other professionals where they receive a commission for referrals. Ask your broker whether this is the case with the lawyer they’re referring. If your broker does receive a commission, it’s up to you to decide whether you believe that this recommendation will be the best one for your business.
In relation to negotiating the price of your lease, a broker may be the best person to secure the lowest price. A handy tip is to hide your enthusiasm for the space. Even if you really like the shop for rent, show your broker and the landlord that you could take it or leave it because you have other options. Being too enthusiastic will be a signal that there’s no need to negotiate as the landlord may perceive your keenness as desperation.
One of the three biggest outlays in a retail store is securing a lease, obtaining merchandise, and employing and managing staff.
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