Leasing space for a business can be a complicated process. There are several variables to consider from location to cost and even more factors when it comes time to sign a lease. Below are general guidelines for how the leasing process works and what you should expect as a business owner.
*The scenario below offers a general summary of the leasing process. The steps may vary depending on a variety of factors.
1. Identify Needs:
Location: Location is possibly the most-used word in real estate and there's a reason for it. Location affects your visibility, the quality of your space and the value. Ask the simple questions - Where are our customers? Our market region? Our employees? What other businesses offer a synergistic relationship? Where is the competition located?
Cost: A good term to learn when speaking about cost is "effective rent." Your monthly rent will be determined by a few variables: lease rate per square foot, free rent or other concessions provided by the owner, utilities and other costs if the lease is Triple Net, additional tenant improvements that are amortized into the rent, and annual rental increases as provided for in your lease. See the sections on Lease Types and Calculating Rent to learn more.
Type of Space: The type of space you need is going to be determined by the type of product or service you provide. See the section on Property Types.
2. Looking for space: Looking for space can be done a number of ways. One option is to drive the market and call the listing agents of the properties that match your criteria. The challenge is you won't know anything about the property or it's asking rate until you call. Another option is to secure the services of a tenant representative. They can show you what's available in the market in the locations and price ranges you want. The next step is to tour your top picks and perform the analysis on which property best fits your business needs.
3. Letter of Intent: A letter of intent is sent to a property owner stating your intent or desire to enter into a lease agreement at their property. These agreements are not leases so they are non-committal in nature but they do establish your intent to negotiate a term with the landlord.
4. Lease Negotiations: Lease negotiations involve several factors including lease rate, length of term, concessions, rate bumps, and renewal options. There are typically many sections of a lease that establish the terms of your agreement with the owner. The negotiations occur regarding these points and can take anywhere from a few days to several weeks or months to complete depending on the complexity of the lease. An owner will also want to establish your financial credibility as a tenant - in other words, your trustworthiness to pay the rent due the owner as part of your agreement. Financials and other documents are used to establish this credibility.
5. Target Occupancy Date: The date set for occupancy can be subject to change depending on the amount of tenant improvements (TIs) that are required. These improvements come in many forms starting with simple paint and carpet to constructing demising walls. The more complex the TI, the more likely the target date will change. The critical stage in this process is when the TIs are completed and a Certificate of Occupancy has been issued for the space.
6. Move In: The fun part begins