Tag Archives: commercial real estate

5 Reasons to Consider a Flex Space for Your Business

Posted on by

If you’ve been hanging around real estate circles these past few years, you’ve probably come across the term Flex Space. But what does it mean, and how can it work for your business? 

Well, people are no longer shying away from embracing new ways of organizing corporate spaces. They want solutions that are more efficient, cheaper, and that offer the flexibility necessary to survive in the 21st-century business world.

For years now, businesses would rent real estate spaces that are fixed for particular purposes on long term leases of about ten years. For example, a company would separately lease a warehouse and its office spaces on long term leases. This layout has been the norm for several years. However, it won’t be long before such a business runs into some challenges with this layout. These may include:

  • Wasted warehouse space when demand expands and goods fly off the shelves
  • Wasted office space when the staff become redundant
  • The need to upgrade for more space when demand falls
  • Lack of flexibility when the contract no longer works in favor of the business

What is Flex Space?

 A Flex Space is a form of commercial real estate with a warehouse, office, and retail space. It is usually a sizable warehouse-style building with a built-to–spec office space and a shorter lease than a traditional office.

A Flex Space setup is becoming more attractive to investors who find short term leases more convenient than long term leases. The ability of a Flex Space to easily shift from one purpose to another also endears it to real estate clients.

What Sets Flex Space Apart From Other Real Estate Options?

Over the past few years, commercial real estate has generally fallen into two broad categories: traditional office spaces and flexible office spaces. But what separates flexible office spaces from its contemporary counterpart? These are but a few differences that make Flex Space unique and worth consideration: 

1. Length of the Agreement Terms

Traditional office spaces were leased in terms of about 7-10 years, depending on the business operations. Flex Spaces, on the other hand, are leased from about seven months to three years. All of this depends on how long your commercial lease should be. Real estate experts go even further and classify all real-estate options that are leasable for less than three years as part of flexible real estate. This is regardless of whether they are traditional office spaces or flex spaces.

2. Co-working and Shared Spaces 

One characteristic common with traditional office spaces is that they are leased by one company. It is uncommon to find a traditional office space or warehouse shared by two or more companies. Not with Flex Spaces. Most Flex Spaces are shared and collectively leased by multiple companies or businesses. Flex Spaces have become a staple for any business that uses the internet or co-working for its day-to-day operations.

 3. The Ability to Share Amenities

The fact that Flex Spaces have shared spaces has led to shared amenities. Depending on the type of Flex Space you choose, there will be a wide range of amenities available to all tenants. These amenities may include free Wi-Fi, coffee, and lounges. The ability to share amenities does not exist in traditional office spaces.

4. Lower Startup Capital

Before a business sets up a traditional office space, there is a lot of investment required just to get the office space running. These expenses include wiring, design, furniture, office devices, and many other things necessary for running an office. Flex Spaces, on the other hand, only require an initial payment; the Flex Space offers all the design, furniture, and office devices.

5. Multi-Functional Flex Space

Unlike traditional office spaces, Flex Spaces have been designed in such a way that they can perform multiple functions. A Flex Space can serve as an office, a retail center, a research center, or a warehouse with little to no modification.

Why You Should Consider Using Flex Space

man-and-woman-shaking-hands-from-across-table-with-other-business-professionals-nearby

Considering a Flex Space as an option will come with various benefits for your business. Most of these arise from its flexibility as compared to traditional office spaces. Some reasons that should have you thinking about Flex Spaces are:

1. Scalability

Embracing Flexible Spaces as a real estate option offers your business the ability to grow or contract its operation depending on the circumstances. If your company expands and requires a few more feet of office space, that is a phone call away. On the other hand, if you wind down operations in one area and require a smaller space, your Flex space has you sorted.

2. Little To No Initial Costs

The initial costs of setting up a new corporate space can be massive. Funding the furniture, the design, and amenities – added to the monthly maintenance costs, can take a toll on a business. With Flex Spaces, your firm does not have to worry about initial costs, as there are little to none. You only have to worry about rent depending on what dictates commercial rent prices in your area.

3. A Sense of Community

Compared to working from home or remote working, the shared spaces in Flex Spaces create a sense of community and teamwork. One obvious downside of remote working is that it detaches workers from their teams and firms. Flex Spaces, however, create a sense of belonging and motivation between working employees.

4. Improved Networking

Flex Spaces where various companies or workers co-exist create environments that encourage the sharing of ideas. Like-minded entrepreneurs can meet and brainstorm new ideas as other employees make friends and socialize.

5. Contract Flexibility

The brief nature of Flex Space contracts gives your business wriggle room whenever things don’t go your way. The real estate market is volatile; nobody knows how coronavirus will affect the real estate market. A ten-year contract can mean that you are stuck with that real estate agent for a long time. A three-year contract or a twelve-month contract is, however, less binding. Whenever you feel like the location is not working for your business, you can always opt-out.

5. Space Flexibility

The ability of Flexible Spaces to shapeshift into different spaces is a crucial benefit to many businesses. The fact that Flexible Spaces can serve other purposes with minimal adjustments makes them a Godsend to several firms.

The Key Take-Away

If you’re interested in Flex Spaces or more information about Real Estate options for your business, Speed Commercial Real Estate is the place for you. We have been giving answers to the real estate clients of the Jackson Metro area for years now. For more information, contact us today, and we will be more than willing to help.

How Much Does it Cost to Rent an Office?

Posted on by

If you’re wondering how much it costs to lease or rent an office space in Jackson, there is no short answer. The cost of commercial office space for rent is based on several factors like office size, neighborhood, and architecture. 

This article is for entrepreneurs and small business professionals on the quest for quality office space for rent. If you’re starting your own business, opening a satellite office in Jackson, or taking your homegrown business from the garage into an office for the first time, you’re in the right place!

Here, we’ll cover the various details of office spaces that will affect your cost to lease them. From square footage to architecture, we’ll explain these key features and propose questions you should consider along the way.

Now, know that office space in Jackson, MS, is some of the nation’s cheapest. Should you have questions beyond this article’s scope, reach out to the team at Speed Commercial Real Estate. 

Commercial Office Space — Size Matters!

It makes sense that square footage — we’re talking about the actual, usable floor space — will directly impact the cost to rent an office. All other factors aside, more room costs more money. Generally speaking, the rent at a 1,000 square foot office will be half the price of a 2,000 square foot office in the same building on the same floor. 

However, the price per square foot varies greatly from city to city, block to block, and even from one building to the next! So, what else affects the price of office space for rent? You’ve heard that old real estate adage before: location is everything.

Location Affects the Cost to Rent an Office Space

You’re probably aware that office space in some cities is incredibly expensive.

  • Across the nation, the office space costs anywhere from $10 to $55 per square foot.
  • New York City, Los Angeles and San Francisco all have a reputation for expensive office space. 

At the time of writing (August 2020), respectable office space in D.C. might cost $50.00 per square foot. In Miami, the same space might cost $33.00, and in Boston $22.00. Jackson is known for extremely affordable office space, sometimes as low as $5 or $10 per square foot! 

hand-holding-smartphone-above-desk-with-earbuds-calculator-and-succulent-while-displaying-generic-map-directions-through-city

A Closer Look at Location

There is far more to a location than the city and state, and this rabbit hole goes much deeper. The local amenities, neighborhoods, and noise levels can have a lot to do with office space costs. If you’re shopping for office space to lease, make a list of key features and amenities.

We realize that every organization is different, but depending on your business, you may need:

  • Easy access to highways, airports or shipping infrastructure
  • Quick access to a post office box, or cargo company
  • Access to either unskilled labor or an educated workforce 
  • Public transportation systems for employees or customers
  • Parking for your team or your customers
  • High-speed internet access
  • Wheelchair accessibility
  • Appealing landscaping
  • Easy access to office supplies

And let’s not forget that a gorgeous view from your office is worth something, too!

Naturally, an online-only “eBay store” can operate in a back room. A brick-and-mortar operation that requires foot traffic (like a boutique or salon) will need quality frontage with curb appeal and options for signage. 

The safety of a neighborhood is also crucial for some businesses. If your business model requires you to keep a lot of cash on hand, store credit card information, or maintain expensive equipment, be sure to spend some quality time — in person — in the neighborhood.

Choosing the right community for a retail operation, in particular, will require boots on the ground.

  • For the sake of your employee productivity and customer experience, you should also consider how much natural sunlight a commercial space gets, and the noise pollution happening around the office.
  • We all know that healthy workers are productive, and natural sunlight has been proven to boost employee productivity in dozens of studies.
  • We also know that noise can reduce output and cause good employees to leave.

As you can imagine, the loft space above a noisy factory might be economical, but will you want to work there? If you leave the office every day with a tremendous headache, will you renew the lease next year? Probably not. 

So you see, details like this have a considerable impact on your cost to rent an office — and the cheapest office isn’t always the best choice.

On Neighbors & Neighborhoods

The neighborhood you choose to do business in says a lot about your organization.

When browsing for Jackson office space online, ask yourself:

  • Should your office be found in an industrial neighborhood or the swanky streets downtown? 
  • How close do you need to be to suppliers?
  • Does foot traffic matter to your business plan? 
  • How close are your competitors?

Convenience plays a role in the price of office space, too. High-end, marble-floored offices near the courthouse are appealing to attorneys and are priced accordingly. Speaking of marble floors, let’s move on to those kinds of architectural details that can affect the price to rent an office. 

Lastly, Consider Architecture, Design, and Historic Buildings

Sparkling new commercial office space will undoubtedly cost more to lease than the same square footage in a run-down building.

There are benefits to leasing a new office space.

  • For instance, you can be confident that the electrical system can handle dozens of servers, and that the HVAC system can keep them cool.
  • You can also trust that this commercial building was built according to Mississippi safety codes — meaning safe stairwells for your staff and quality roofing over your inventory.  

But there’s something to be said for recently renovated historical buildings, too.

  • Once remodeled and brought up to code, historic office buildings can lend unparalleled ambiance and dignity to your office.
  • If you work in financials, insurance, or the legal profession, what could be better than a beautifully renovated historic office space? 

Ultimately, every small business has a unique angle, and so does every office space for rent. The perfect office will help you attract the right staff and the best customers. Whether you need a high-tech facility or a cozy back office, reach out to Speed Commercial Real Estate today. 

Related Reading & Resources:

Priceithere.com: How Much Does it Cost to Rent Office Space?

Marketwatch.com: Here’s How Much Your Company Pays to Rent Office Space

What Affects the Value of Commercial Real Estate Properties?

Posted on by

The commercial real estate market is continually evolving and reacting to changes that occur over time. If the goal is to purchase commercial property, you need to be aware of all factors that could cause an increase or fall in real estate values. The following are the most significant factors to consider before your next purchase to ensure you stay ahead of any value fluctuations. 

1.     Location

The location of a property is crucial and has a large impact on the value of commercial real estate properties. Location comes with varying elements to consider, the first of which is surrounding properties. If, for instance, your top pick rests in an area with other similar properties in terms of amenities and square footage, you are likely to get almost uniform increases or decreases in property values.

Take, for instance, the neighborhoods in the Downtown, Virden, and Belhaven areas of Jackson. Properties in these areas are often used for rental purposes. Occasionally, you’ll find that sizing in terms of square footage is similar. Their real estate values appreciate and fall based on the location, with the current rent being between $1,043 and $1,141 a month.

Commercial Real Estate and Accessibility

Transportation is another aspect to consider. This mainly involves access to highways and freeways, transit systems, and parking. Additionally, consider the number of vehicles that pass by daily. More traffic means more exposure for a commercial property and will increase real estate prices.

Vehicle ingress and egress is the last aspect affecting the location of real estate properties. Simply put, this refers to the ease of entry and exit. If a property has direct and easy access systems, it will likely come at a higher price than one which is difficult to access. The ability of vehicles to make turns also comes in handy. This results in more value for a property with easy maneuverability.

2.     Supply and Demand

Real estate is also subject to the laws of supply and demand, which state that if supply exceeds demand, commercial property prices will fall. In this situation, a buyer’s market arises where buyers have the upper hand. The vice versa refers to a seller’s market, when demand exceeds supply and property value increases.

3.     Demographics

female-real-estate-agent-walking-with-male-client-in-commercial-real-estate-property-with-doors-in-background

Demographics comprise aspects such as age, race, gender, population migration, and education levels. By relying on these attributes, the real estate market determines what properties to avail to buyers. Where regions experience an increase of young and educated people, properties are likely to be high-end. On the other hand, if the larger part of the population is aging, the types of homes in such an area will include retirement homes, resulting in low-priced commercial real estate properties. 

If you consider an area like Jackson, the median age of its population is 32.4 years. Furthermore, 85.6% of the residents here have a high school degree. With such factors, the value for commercial real estate properties in the area is bound to be higher.

4.     Maintenance

Property impressions are short-lived but play a significant role in determining commercial real estate property value. Attractive aesthetic touches such as finishes and landscaping details mean an increase in property pricing and value. It follows that poor exteriors result in low real estate property valuation.

The property’s interior condition also contributes to its value and indicates a lot about its maintenance. If, for instance, you are eyeing a newly constructed building, the chances are that it will need little to no repairs. This means the value of such a real estate property will be high. However, the same cannot be said of older buildings. Degradation of amenities such as the HVAC, piping, electrical wiring, and the foundation means more repairs for buyers and investors. Due to these factors, such a property features low desirability, leading to reduced property prices. 

5.     Renovation and Value Addition

Additionally, the potential to either renovate or add value is another factor with a major influence on the valuation of a commercial property. A property with such potential is a better option for investors and buyers, as it can fetch more money than its initial selling price. It will, therefore, come at a higher rate than a property where you can’t make any improvements.

6.     The Functionality of the Commercial Real Estate Property

The functionality of a commercial property mainly considers its size and the facilities provided. If more buyers are looking for a space with two bedrooms, a swimming pool and gym facilities, properties with these amenities will likely experience a rise in value. Those lacking these functionalities will, on the other hand, experience a drop in demand and subsequently, a dip in value.

7.     Commercial Real Estate Redevelopment Potential

With redevelopment potential, investors get the benefit of transforming a property into their desired space. Warehouse spaces can, for instance, be converted to business centers by investors and buyers looking to settle can modify the same piece of property into a residential space. Such flexibility results in an increase in real estate value since the possibilities are endless for buyers.

8.     The Economy

Economic performance in real estate also relies on aspects such as GDP, unemployment rates, household savings, and job growth. When these elements rise or fall, the regional, national, and international economy is also affected, contributing to a ripple effect in the real estate sector. If, for instance, there is an increase in jobs, people have more money to spend, which increases the value of properties. For example, Jackson’s economy has seen a growing GDP of nearly $25.5 billion, making it a hotspot for business. With this comes an increase in spending power. Increases in commercial real estate value also result, seeing as more people can afford property.

Consider Commercial Real Estate

Commercial real estate properties are an investment for people looking to either rent out or settle down. However, the factors listed above necessitate due diligence and patience before your purchase. While one factor may play a large role in your desired property’s value, it is wise to look at other elements to ensure you get a fair price. If you are looking to consult on investing in commercial real estate, get in touch with Speed Commercial Real Estate today.

How to Select a Retail Location For Your Business

Posted on by

One of the most important decisions when you start your retail operation is, of course, your retail location. “Location, location, location” is not an out of date creed, despite the modern importance of e-commerce as part of your business.

Choosing exactly where to hang your shingle can, though, be a challenge. Some of the factors that affect it are ones you also need to know for other marketing purposes. Others are specific to choosing a physical space and location. So, here are the factors you need to take into account:

Who is your Customer?

This is one of those basic questions you need to answer before establishing your business. The best location for a store commonly patronized by teenagers may not be the same as one that generally appeals to older adults.

At the broad level, make sure that the demographics of the city or county you choose match well with those of your core customer base. Obviously, this needs to be balanced with your own commute and other desires, but there’s no sense setting up shop in a neighborhood that simply does not contain your target audience. You also need to pay attention to population trends. An aging population may age out of the demographics for a sporting goods store, for example.

What Are You Selling?

The second basic factor is the nature of the goods you are selling. First of all, what you are selling impacts your minimum space requirements. A furniture store needs a lot more basic space than a bookstore; but the bookstore may also find that some kind of cafe area or reading room is essential to attract customers.

Make sure that you know what you need in terms of not just space, but also layout and fixtures. If you need certain equipment, you may be able to save startup money by choosing a space that already has, for example, a full kitchen to make those cafe snacks.

commercial-real-estate-location-on-street-with-parked-cars

The other thing to consider is whether you are selling convenience goods, shopping, or specialty. In general, convenience goods such as candy bars and milk should be located on high traffic intersections in or near neighborhoods. Shopping, in this context, includes higher-priced objects such as clothing, cars, and furniture. People are more willing to make special trips, but often appreciate multiple options close together. In this category, being close to a department store is actually an advantage. Finally, specialty is expensive goods that are bought infrequently, such as jewelry and antiques. In most cases, customers already know what they are looking for and where to go, and you can often get away with a more isolated location.

Finally, look at the immediate future plans for the location. If highway construction or remodeling is planned, look at the plans to see how they will affect your location. Suddenly finding yourself on a seldom-used “business” street or a dead end can be a dealkiller if you are relying on traffic.

Who is Your Competition and Who Complements?

“Retail compatibility” is a term that’s often used to describe which stores should be together. The vast majority of stores don’t, and can’t, exist in isolated locations. Your store will most likely be in a store cluster (which includes both indoor and strip malls).

You need to be both away from identical operations and near similar ones. Being the only toy store in a mall dedicated to fashion is not necessarily helpful, but you also don’t want to be one of two beauty supply stores in the same wing of the mall.

You should also look at whether the nearby stores will attract the same demographic, including in terms of buying power. A jewelry store is better off next to a fashion boutique or a higher end hair salon rather than right next to Target, for example. You want stores that draw traffic and notice to yours, and vice versa.

How Accessible is the Retail Location?

You want traffic, but it has to be the right kind of traffic. On the other hand, you absolutely should consider how many people go past your location. Are they walking or driving? For stores that sell small, light items such as clothing, being in a walkable area is a major plus. For furniture stores, you need your customers to be able to arrive in their cars (and park).

If you’re going for a store in an indoor mall, how much parking does the mall have? And how close are you to an exit, either to the street or the lot (in some malls this is the same thing, but in urban malls these can be quite separate. The rule of thumb is 5 to 8 parking spaces per 1,000 square feet of retail space. Check that the lot is ADA compliant and that what is being charged for parking is not excessively high for the area. Watch traffic when the mall is busy. You want there to be plenty of traffic, but queues to get in or out should be limited to extremely high traffic times such as Black Friday or right before Christmas.

Retail Location Budget

Prime locations cost. As a new store owner and small business, you probably won’t be able to afford the best retail location. Indoor malls, in particular, can be very expensive. You might find a slightly quieter strip mall to be a better compromise.

When determining costs, take into consideration the fact that if you have a cheaper, low traffic location, you will be paying more money for advertising and other ways to get customers in the door. Make sure you know your margins and how much you need in sales volume, then do the math.

If you choose an unusual retail location, be sure to check the zoning regulations to make sure that you can put up the signs you need or even run the type of business you intend to run. Finally, make sure that you know what costs you might be responsible for other than base rent. Make sure that you know if you are responsible for property taxes, security, landscaping, a share of parking lot maintenance, etc. A retail location that fits your needs with minimal remodeling will always be cheaper, but this is not always something you can find and may carry a rent premium.

Does the store have restrooms? In indoor malls, sometimes a restroom nearby is enough for staff as well as customers, but bear in mind that a staff member will have to leave to go to the restroom and try to keep this time minimal. For an isolated location, you want restrooms for customers.

Choosing your retail location is a difficult task that you should not rush, and involves many decisions. Make sure to research both the immediate location and the general area and balance needs such as traffic versus budget and your own commute versus the best location for your store.

If you’d like help making the best decision, we offer tenant representation services, and we’d be happy to help you find your ideal business location. Just give us a call and we’ll help you get started.  

6 Questions To Ask When Choosing An Office Space

Posted on by

Choosing the right office location and space can make a huge difference in the day-to-day operations of your business. You want your employees and any visiting business partners or clients to feel comfortable, welcomed, and productive in a space that is accessible. But do you know how to make the right decision about what office space is best? Read on to learn about what factors you should consider when choosing a location for your office. 

Does It Match Your Culture?

Both the space itself and the city or town it’s located in should match your business’s brand. Having a strong presence in a big city like New York isn’t right for every business, and getting such a prime piece of real estate can be difficult. Instead, find a town, neighborhood, or metropolitan area that appeals to both the clients and potential employees you’re trying to attract.

Don’t forget to consider your business’s values and culture when choosing the right space. Is your management style more laid back or more formal? Do you rely on teamwork and collaboration, or more on individual contributions? All of these will have an impact on where you choose to locate. Laid-back businesses may want to choose open-concept spaces in hip neighborhoods, while a more formal company may want a traditional cubicle-style office location in a city’s business district. 

Is It Easy And Convenient To Get To?

The perfect office space isn’t of much value if it’s in the middle of nowhere. Look for an office location that is accessible by public transit or near major highways so that employees have a stress-free commute and any clients visiting you on-site will be able to find you easily. Having a dedicated parking lot or plenty of parking nearby would also be to your advantage. And it even helps to be located in a highly walkable area, as this can increase your business’s visibility.

And don’t forget about nearby amenities. It can be nice to take clients out to lunch at a restaurant right down the street, and employees love having cafés and shops nearby, so they can get out and take a break from the office. If employees feel like they’re trapped in the office because it’s surrounded by busy roads or it isn’t close to anything, employee satisfaction may be lower. 

How Is The Office Space Laid Out?

Take into consideration how the space is laid out and if it works with how your business operates. Are there individual offices for senior management? If you focus on collaboration a lot, are there large conference areas? Do you plan on adding cubicles, or do you want to keep the space totally open? If you plan on meeting with clients in your office, is there space for that, too? You want a space that encourages productivity while discouraging burnout or isolation. 

High angle shot of businesspeople in an office with staircase and cafe tables

It’s also important to think about amenities like restrooms and break areas. Are there plenty available and are they in an area that’s accessible to your employees? It can be annoying to have to take a five-minute walk to the other side of the building just to use the restroom. And you’ll probably want a designated break or lunchroom, complete with space for, at the very least, a refrigerator, coffee maker, and microwave. Having an area for dining or just relaxing can encourage strong relationships between employees. 

And don’t forget about outdoor space as well. A park-like setting is always attractive, as this allows employees a chance to go out and get a breath of fresh air or some exercise in at lunchtime. But in big cities, having outdoor space, or even a dedicated parking lot is difficult. However, there will still be plenty of places nearby to walk to. 

Is The Space Right For Your Image?

You’re working hard to grow your business, attract new clients, and build a solid reputation, and your office space should reflect the image you’re trying to project. Think of your office as a marketing tool. Do you have a welcoming reception space that matches the feel of your business? An industrial-looking space could be great for a tech startup, while the same space may be a turn-off for clients of a financial consulting firm. 

What do you want your office to say about you? Are you fun to work with and work for? Then look for a relaxed space, where you can include elements like a ping-pong table or a recreational area. But at the same time, an ostentatious or over-the-top office space may have employees and clients wondering if you’re focused more on shallow elements as opposed to your actual operations. 

Is There Room To Grow?

Think about the projected growth of your business before you decide on the right space. Even if you’re small right now, where do you think you’ll be in five or ten years? Of course, you’re undoubtedly hoping to grow, but think about it in realistic terms. You don’t want to be moving office locations every few years to adjust for growth, so look for an office space that can scale with you.

Even if you’re not using all the space right away, it may be good to have down the line. Most experts recommend having at least 80 to 120 square feet per employee, including both personal workspaces and common areas. If you only have twenty employees now but plan on hiring five to ten more within the next few years, you’ll need an extra 400 to 1200 square feet to accommodate them. 

Are You Getting A Great Value?

Think about what element of your office location is most important to you. Is it being conveniently located close to public transit, or is it all about having a presence in the right neighborhood? Whatever is most important to you, make sure you consider this factor, along with the price of the space you want. Does it seem worth it? Remember, your office space is one of your biggest investments, and having an office that increases productivity, bolsters employee retention and satisfaction, and brings in new clients will pay for itself in the long run. 

How To Negotiate a Commercial Lease

Posted on by

Many new business owners have only ever dealt with residential leases. Residential leases are generally standardized and only rarely is a company willing to negotiate with a tenant. A commercial lease, on the other hand, is completely different.

Everything in a commercial lease is open to negotiation, from the rent to the length of the lease to who is responsible for which repairs. This realization can be overwhelming to a new business owner. Here are some tips on negotiating a commercial lease, and remember that you will probably want to involve a lawyer at some point in the process.

Know Your Budget and Priorities

Before you even start searching for a building or part of a building to lease, you need to know your budget and your priorities.  How much you can afford to spend is the first factor.

Then put down a list of the things you absolutely must have. This includes features of the building itself, such as minimum square footage or number of parking spaces, but it should also include clauses you want in the lease. You might, for example, need certain improvements to the property to be made before you can move in. Make sure your lease allows you to cure a default before eviction.

After that, come the nice-to-haves. A sublet clause? If your business is brand new, that might be a must-have. You might also want to try and get your landlord barred from renting a unit close to yours to a similar business, which can matter a lot in retail.

Know Your Commercial Lease Types

POV-photo-of-hands-holding-lease-agreement-in-clipboard-with-glass-of-water-on-table-near-laptop

There are four basic types of commercial lease in terms of who pays for what:

  1. Single net lease or net lease. The tenant pays utilities and property tax, while the landlord covers maintenance, repairs, and insurance.
  2. Double net lease. Tenant pays utilities, property tax, and insurance, landlord covers maintenance and repairs.
  3. Triple net lease. Tenant responsible for all costs except major structural repairs.
  4. Full service gross or modified gross. Structural repairs and operating expenses, including insurance, taxes, and utilities are split between the tenant and the landlord.

If you are leasing in a multi-tenant building, expect a full-service gross lease, as this divides building expenses between tenants, usually by a formula based on square footage. These leases vary in precise details. For example, you may be responsible for your own janitorial services or there may be a building service tenants pay for on a pro rata basis. Make sure you know every detail of the lease you are signing.

Research Fair Market Rent

Find out what similar units or buildings are going for under similar commercial lease terms. If the rent seems too high, you can use this research as ammunition to negotiate a lower rate.

If, on the other hand, a building is being offered at a lowball price, you will know in advance that there might be something wrong with it; you might be able to get a deal or there might be things going on with it that would be unacceptable to you. You can do your research and find out why the price is so low.

Verify the Space

There’s a term for incorrect measurements provided by landlords: “Rubber rulers.” It’s that common. Go look at the space you are going to be leasing and measure it. Remember that spaces always look smaller without furniture…you really want to at least pace it out. If you are renting an office, you will also have a multiplying factor that covers your share of common areas. Look at this, too. Don’t agree to it automatically. Sometimes you may find it is out of proportion, especially if you have a smaller number of employees.

Landlords have also been known to include wall thicknesses, air shafts, etc as part of rentable space. Verifying the space is important both so you don’t overpay and so you know you are getting the square footage you have determined you need. If in doubt, hire an architect. This can be expensive, but it can save you money in the long term and, especially, save you from renting a space that turns out to be too small. Make sure they use a generally accepted standard.

Pick Your Battles

Any negotiation is a compromise. When you start negotiating, come armed with your list of must-haves and deal killers. However, don’t let the landlord know what’s on that list; if they find out what you really want, they can use that against you.

Look for compromises. If you absolutely must have assistance remodeling the space, then you might need to be willing to sign a longer lease. (If so, talk about a subletting clause.) There may be things you are willing to shift on and things you aren’t (don’t, for example, sign a catch-all operating expenses clause, but make sure it details exactly what it covers).

You need to know what those are, and where you are willing to compromise and not.

Get Help

Commercial leases are very complicated. If you have never negotiated one before, you really should consider professional help. A lawyer is a good idea, but what can also help a lot is a tenant representative who can guide you through things like space evaluation, needs assessment and rent research. A lot of this stuff is both tedious and outside of your likely field of expertise. Having an expert on your side is a good idea. You can be absolutely sure that your landlord will have a lawyer and experts to help negotiate the lease. Remember that landlords will always try to negotiate and close on leases in their own favor.

You should always come at negotiating a commercial lease as the complicated transaction it is, and know that everything is negotiable. The initial lease your landlord’s representative hands or sends you is a starting point for negotiations (and may have inaccuracies about space). Never sign the first lease, but always read through it, check for clauses you don’t like, and start working towards a compromise that is satisfactory to both of you.

How Long Should Your Commercial Lease Be?

Posted on by

Signing a commercial lease is a huge decision. There are a number of factors that are particularly important, and top of the list is the length of your lease. Most residential leases go year to year, and negotiating a longer lease is often to your benefit. Commercial leases are different animals. They tend to last for a longer period of time, and there are advantages and disadvantages to short- or long-term leases.

How Long is a Typical Commercial Lease?

Commercial leases can run anywhere from one to ten years. Short-term leases are less common, and landlords prefer to sign long leases. It is often a challenge for them to fill the space when a tenant moves out, especially for storefronts and offices where heavy remodeling can be required before a new tenant can move in.

The length of the lease can affect what kind of deal you can get in a variety of areas, not just the amount of rent you pay or how much it will increase. Negotiating the length of a lease is a bit of a balancing act between your needs and your landlords’.

two-people-shaking-hands-over-clipboard-with-paperwork

Advantages of a Short-Term Commercial Lease

A short-term lease (three years or less) makes sense for some businesses. It has a number of advantages for the tenant (and few for the landlord). The two biggest are:

  1. You are not locked into a lease if your business fails. Even if you go out of business, you are still on the hook for rent for the rest of the lease term.
  2. You have more flexibility if the needs of your business change. You may need more space, or you may find you actually rented too much space.

A short-term lease can often, but not always, be renewed when the term is up if your business is doing well, but you have the ability to walk away easily if things are not going the way you planned. If the kind of space you need is easy to find and relatively small, it’s a low risk; you may have to move, but should easily be able to find a new space for your business.

Advantages of a Long-Term Commercial Lease

There are also advantages to signing a longer term lease, which include:

  1. Being able to stay in a space for longer without having to worry about moving.
  2. Many landlords will give concessions to tenants willing to sign longer term leases.
  3. You don’t have to refit your space as often or pay the costs of moving to a new location if your lease expires and either cannot be renewed or becomes unaffordable.

From this, you can see that there are trade-offs. Whether you want a short or long-term lease depends on the type of business you are running, the kind of space you need, and how established your business is.

For the most part, you want to sign a short-term lease for your first commercial space, when you are not sure whether you have a good business idea.

For offices, warehouses, and other businesses for whom location is not that important, short-term is better. This is especially true if there is a lot of suitable space on the market in your area.

However, if you are renting a storefront or a restaurant and are able to snag a particularly good location, then keeping that location may be worth the risk of signing a longer lease. Customers who get used to an outlet being in one place are often resistant about moving to a new location. Depending on patterns of foot and vehicle traffic, they may have problems finding your new place, which can result in customers going elsewhere. This is less of a concern for, say, a medical office than it is for a restaurant.

Alternatives and Compromises

It’s worth remembering that every aspect of a commercial lease is up for negotiation. Residential landlords tend to have standard leases from which they will not budge. Commercial landlords will negotiate every single clause, and will generally start by inflating everything, including the length of the lease.

Because of this, you may be able to negotiate a non-standard lease length. One good alternative, especially for stores and restaurants, is a short-term initial lease with the option to renew. There will generally be a rent increase on renewal, and some landlords may charge a fee for this option. If you are worried about your business’s survival, then a one or two year lease with an option to renew for three to five more years can be a perfect option.

Note that a long-term lease does not spare you rent increases; they are generally baked into the lease. However, they can spare you nasty surprises when you approach the landlord to renew. (Most landlords would prefer a tenant renew. But, it’s not uncommon for them to hike the rent at this point, especially if you have negotiated an agreed cap on increases during the lease term). 

Another advantage of a long-term lease is that it often makes landlords more willing to help cover part of the cost of necessary improvements and changes to the space.

One Final Consideration:

If you have special needs or need a lot of space, expect to sign a longer lease. Landlords are more likely to demand them. And, the risk of being thrown out of your space is much higher if your needs can’t easily be met elsewhere. It is also much harder to walk away when negotiations go poorly.

In short, the best length for a commercial lease depends on the risk you are taking. This is directly related to how new your business is, the kind of space you need, and whether the market in your area favors landlords or tenants. This is a complex process, and is only part of what you need to negotiate in a new lease; you also have to worry about who pays what in terms of utilities and damage to the building. For most people, especially those starting new ventures, it’s best to have a professional help you negotiate the maze (like one of our commercial real estate brokers) and get the best lease terms, including length, for your business.

3 Reasons To Invest In Commercial Real Estate

Posted on by

While the stock market appears to have the glamour and action, with prices rising and falling by the hour, it’s really quality real estate investments which have the power to perform during any market condition, bull or bear. People further argue that stocks and bonds have the edge over real estate investments, thanks to their liquidity, but that theory of liquidity simply doesn’t hold water, if you don’t mind the pun.

Granted, liquidity can be of value for those investors uncertain about their decisions. Liquidity is your escape hatch when an investment sours or no longer meets your financial needs and goals. Unfortunately, all too often, by the time you are opening that escape hatch, the bad news has hit the streets which is reflected by a plummeting price. Then the game becomes about getting out before others.

This is not at all the game which commercial real estate investors prefer playing. They are more into winning from step one, and continuing to cash in on their astute choices month in and month out, thanks to the reliable rental and lease revenues which commercial real estate is capable of generating.

The Three Reasons You Need Commercial Real Estate

While every investment offers certain benefits, when you compare the reasons why astute and experienced investors regularly seek out commercial real estate properties as investments, you will better understand the logic behind making this type of commitment. And you will likely find yourself more excited and motivated to pursue commercial real estate because, as you will see, those benefits really pay off!

Reason #1: Tax Advantages

Whenever you earn dividends on stocks or interest on bonds, you are required to declare those earning on your tax return and pay taxes on them, according to your tax bracket. With tax brackets as high as 37%, you could see a good third of your investment income from stocks and bonds go right into the pockets of your local and federal government.

With average stock yields offering an unexciting 2.22% annual return and bond yields  of 5% per year, knocking off a third of those returns brings you down to returns of 1.40% and 3.15% after taxes, but before inflation. With US inflation on pace to run 2% per year for the next few years, your stock returns don’t even keep up and the bonds are barely staying ahead of the inflationary curve. (By the way, the reason bonds offer higher yields is that there is minimal or no upside growth potential on the bond principal; annual interest payments are what bondholders rely upon.)

In comparison, when investing in quality commercial real estate investments, you can shelter most, sometimes all, of your real estate revenue. In fact, in the early years, if played right, you can save taxes and get a tax-free income stream with a paper loss on your commercial real estate investment; that is simply something a stock or bond cannot do!

Reason #2: Reliable Revenue

When you buy stock, you are buying shares of a company which works to generate profits for its shareholders. Unfortunately, those profits are beyond your control; if the CEO of the company whose share you own is awarded a hefty “performance” bonus, that comes out of your pocket in the form of reduced dividend payments. Ironically, that same CEO, when the company doesn’t produce profits or dividends, is still paid a sizable salary and often still gets a bonus!

If you view a commercial real estate venture as a type of business, which has employees and generates revenue, the powerhouse making your money is not a highly-paid executive or group of employees, but instead is a tangible property. Better than bonds, where interest rates are fixed for long terms of time, real estate rental agreements and leases are typically structured as short term contracts, which regularly renew with increases in rental or lease payments. Even long term commercial property leases often factor in regular lease increases to reflect anticipated inflationary increases.

So not only are you sitting on a reliable revenue stream, but it adjusts for inflation, often notching up faster and higher than the actual cost of living is rising.

Reason #3: Superior Growth

While stock prices can fluctuate wildly, particularly during economic periods of uncertainty, commercial real estate investors are blessed by a quieter, less volatile, marketplace. As a matter of fact, stock prices rarely reflect the actual value of the company, but infers value based upon potential, promises, and hopes. In other words, the stock market is often pushed about by emotions, which causes dramatic rises and falls of fortunes beyond the control of the investor. 

It’s just the reverse when it comes to commercial real estate investments. Because there are not daily postings of the “value” of a commercial real estate investment (which reflects more than the intrinsic values of the property), determining a realistic and fair value of a property is based upon formulas, not feelings.

Two formulas in particular remain popular and reliable methods for gauging the value of a commercial property:

Capitalization Rate

Also called a “cap rate,” this determines actual investment return (as a yield percentage) by dividing the net annual income by the original purchase price. For instance, a property for which you paid $1,000,000 and is generating a net income of $75,000 per year would have a 7.5% cap rate (75,000 divided by 1,000,000 = 0.075, or 7.5%).

If you held that property for 20 years and your net income rose to $150,000 per year, your cap rate (or investment return) is now 15%. However, if you decide to sell this property at that original 7.5% cap rate, your property would list for $2,000,000, or a doubling of your investment.

Gross Rent Multiplier

Also called a “GRM,” this is a more simplistic approach to determining value, as it is based solely on gross rental revenues, without factoring in operating expenses to determine net revenue. For the astute investor confident about effectively managing commercial real estate operating expenses, purchasing on a GRM evaluation is an acceptable approach.

The formula for determining the GRM is simple: divide the asking (or purchase) price by the gross rental revenue, and the result is the GRM. If we use the same example as above, where you paid $1,000,000 for a commercial property, here is how you would calculate its GRM for that purchase price:

  1. We will assume that gross rental revenues run $150,000 (operating expenses of $75,000 produced the $75,000 net income in the Cap Rate example above)
  2. Since you paid $1,000,000 for this property, divide $1,000,000 by $150,000
  3. The result is 6.67, which is the GRM if purchased at $1,000,000

By the way, if you are a savvy investor and can negotiate a $900,000 purchase price, your GRM drops to an even 6.

The rule to remember is you want to purchase properties with the highest cap rate and/or lowest GRM.

Finally, as to future value. It is great to say your property is worth $2,000,000 on paper, but it’s unlikely you will find another solid investment capable of producing the 15% return you are now earning. While investors in stocks and bonds are usually trying to watch for a good selling point, with the phenomenal rate of return you receive, you have no motivation whatsoever to sell and get into “something better.” You already have the best investment with commercial real estate in your portfolio!

Commercial Real Estate Opportunities in Jackson, Mississippi

Savvy investors in America and around the world find the commercial real estate opportunities in Jackson, Mississippi both exciting and profitable. This state capital, with a population of under 200,000 citizens, offers beautiful commercial properties with exceptional cap rates, much higher than the national average.

At Speed Commercial Real Estate, Jackson is our own very backyard which we have worked assiduously and thoroughly for more than a decade and a half. As specialists in commercial property sales, we are also active managers of multiple properties, including office, retail, and industrial warehouse spaces.

For the discriminating investor demanding an above-average return with below-average risks in the commercial real estate sector, our expansive list of properties can very well meet your specific desires. Call us today and we’ll help you uncover a property gem capable of amazing income and growth returns.