As your business grows, you will likely need to move to a larger facility. If you are considering leasing industrial space, there are a few key things that you should keep in mind. Industrial spaces include warehouse spaces, distribution centers, light industrial buildings, and manufacturing facilities. When you are looking for an industrial space to lease, there are some key factors that you need to keep in mind. In this article, we will provide you with a complete guide on how to lease industrial space and also show you things to avoid during the process.
- Step 1: Finding The Right Type of Industrial Space
- Step 2: Evaluating Lease Terms
- Step 3: Negotiating a Lease Agreement
- Step 4: Signing the Lease Agreement
- Commercial Real Estate Leasing vs Buying
- Find a Commercial Real Estate Broker
- The Bottom Line
Step 1: Finding The Right Type of Industrial Space
Determine Your Industrial Space Requirements
The first step is to figure out exactly what type of industrial space you need. You will need to take into account the size, layout, and location of the property.
Size: The size of the industrial space will be determined by the amount of inventory that you have and also the type of machinery that you use. If you have a lot of heavy machinery, then you will need a larger space.
Layout: The layout of the industrial space is also important. You will need to make sure that the property has enough room for your equipment and also for your employees to move around.
Location: The location of the industrial space is also important. You will want to choose a location that is close to your customers and employees and also has good transportation access.
Choose a type of property
Industrial spaces come in a variety of types. There are warehouses, distribution centers, flex spaces, light industrial buildings, and manufacturing facilities. You will need to choose the type of property that best suits your needs.
Warehouse: A warehouse space is a good choice for businesses that need a lot of space for storage.
Distribution center: A distribution center is a good choice for businesses that need to ship products to their customers.
Flex space: Flex space is a good choice for businesses that need a combination of office and industrial space.
Light industrial building: A light industrial building is a good choice for businesses that need a smaller amount of space.
Manufacturing facility: A manufacturing facility is a good choice for businesses that need a large amount of space for manufacturing.
Search online for property listings
Online listings on commercial real estate websites are a great way to find industrial space. You can use websites such as LoopNet, Costar, and Industrial Space Finder to find listings in your area. Most of these websites allow you to perform advanced searches so that you can find properties that match your specific requirements. For instance, you can search for properties that are a certain size, have a certain number of loading docks, and are in a specific location.
Visiting Commercial Industrial Properties in Person
Once you narrow down your choices of top properties that match your requirements, you should visit the properties in person. This will allow you to get a better feel for the property and also talk to the leasing agent. You might also get a chance to meet the landlord and ask any questions that you have.
When you visit the property, pay attention to the following things:
• The condition of the property: Is the property in good condition? Are there any signs of damage?
• The layout of the property: Does the property have a good layout for your needs?
• The location of the property: Is the property in a good location for your employees and customers?
• The price of the property: Is the property priced within your budget?
Be Aware of Commercial Property Zoning
If your business performs certain types of activities, then you will need to make sure that the property is zoned for those activities. For instance, if your business requires a lot of noise, then you will want to make sure that the property is zoned for industrial use. Overlooking this can be a costly mistake.
Determine Your Maximum Budget
You need to determine how much you are willing to spend on your industrial space. This will help you to narrow down your choices and also prevent you from overspending. After all, the main reason you are looking for industrial space is to grow your business, and overspending on commercial leases can put a strain on your business finances.
Narrow Down Your Choices and Select the Best
Once you narrowed down your choices of commercial industrial spaces, you need to select the best one. The best way to do this is by using a checklist.
A checklist will help you to compare each property and see which one meets your needs the most. There are so many factors that go into evaluating an industrial property that without a checklist, it can be easy to overlook something important. You can create a checklist from the criteria that we mentioned earlier in the article.
Step 2: Evaluating Lease Terms
Once you narrow down the choices of the best properties for your business, you will need to evaluate the lease terms. The lease terms are just as important as the property itself because they will determine how much you will pay each month and also how long you will be able to stay in the space.
Here are some things that you should look for in a commercial lease:
Length of lease term
You will want to choose a commercial lease term that is long enough for your needs. For instance, if you are planning on expanding your business in the near future, then you will want to choose a longer lease term so that you will not have to move again. This will give you added stability for your business.
Price of the lease
Of course, you will want to make sure that the price of the lease is within your budget. However, you should also be aware that the price is usually negotiable. So, if you feel like you are being overcharged, then you can try to negotiate a lower price.
Be aware of hidden expenses
When you are evaluating the price of the lease, you need to make sure that you are aware of all of the expenses. For instance, some landlords will charge extra for trash removal or parking. These hidden expenses can add up, so be sure to ask about them ahead of time.
Know your rental obligations
You will also want to make sure that you are aware of your rental obligations. For instance, some landlords will require you to maintain the property in good condition. Others might require you to get insurance for the property. Be sure to ask about these things ahead of time so that you can budget for them.
Research your prospective landlord
Find out as much as you can about your prospective landlord. You can do this by searching online or by asking around. It is important to know if they have a good reputation and if they have been easy to work with in the past.
Get everything in writing
Make sure that you get all of the terms of the lease in writing. This way, there will be no misunderstanding later on. Most of the issues that arise between landlords and tenants are due to a misunderstanding of the terms of the lease.
Commercial Lease Basics
Make sure you understand the basics of a commercial lease before signing anything. This includes understanding the difference between a gross lease and a net lease.
Gross leases are when the tenant pays one lump sum for rent and the landlord covers the expenses.
Net leases are leases where the tenant pays for their own share of the expenses in addition to the rent.
Common Commercial Lease Terms
Beyond the type of lease, you should also be familiar with some of the common terms found in a commercial lease. Here are a few that you should know:
Rentable square footage: This is the total space that you will be paying for.
Load factor: This is the percentage of rentable square footage that is usable space. For instance, if an office has a load factor of 10%, that means that 90% of the space is unusable.
Tenant improvement allowance: This is money that the landlord is willing to give you to make improvements to the space.
Operating expenses: These are the expenses associated with running the property, such as utilities, janitorial services, and insurance.
Signage: This is the right to put up a sign on the property.
Now that you narrowed down your choices to the top few locations and evaluated the lease agreement, you are ready to start negotiating your lease agreement.
Step 3: Negotiating a Lease Agreement
Request a pro forma lease copy
The first step in negotiation is to request a pro forma commercial lease copy from the landlord. This is a blank lease agreement that you can fill out with your own terms. This allows you to see what the landlord is willing to negotiate.
Make a list of your must-haves
Before you start negotiating, you should make a list of your must-haves. These are the terms that you absolutely need in order to sign the lease agreement. This could include things like a lower rent price, a longer lease term, or a larger space.
Consider giving up something in return for your must-haves
Once you have your list of must-haves, you should be willing to give up something in return. For instance, if you are asking for a lower rent price, you might be willing to sign a longer lease term. Or, if you are asking for a larger space, you might be willing to pay a higher rent price.
Don’t be afraid to walk away
If the landlord is not willing to meet your needs, then you should be prepared to walk away from the deal. There are other industrial spaces out there that will be more willing to work with you.
Ask about add-on clauses
Once you have agreed on the basic terms of the lease, you should ask about add-on clauses. These are clauses that are added to the lease agreement that protects both the landlord and the tenant.
Add-on clauses could include things like:
• The right to sublease – This allows you to sublet the space to another tenant if you can’t use it.
• The right to terminate the lease – This allows you to end the lease early if you need to.
• The right of first refusal – This gives you the first opportunity to renew the lease when it expires.
Step 4: Signing the Lease Agreement
After going through the process outlined above and you have found an industrial space that meets your needs, it is time to sign the lease agreement. But before you do, there are a few things that you should keep in mind.
Read the lease agreement carefully
Make sure you understand all of the terms and conditions of the lease agreement before signing it. The last thing you want is to be stuck in a commercial lease that you can’t easily get out of. If you need help, I strongly recommend hiring an attorney that specializes in commercial leases. He/she will be able to help you understand the agreement and negotiate on your behalf. A lot of times, legal terms can be confusing, so it’s best to have someone that can help explain them to you.
Do a final walkthrough
Before you sign the lease agreement, you should do a final walkthrough of the space. This is to make sure that there hasn’t been any damage since you last saw it. Even if the chance is small of things happening to the space during the negotiation phase, you never want to be caught off guard.
Get everything in writing
Before you sign anything, make sure that all of the terms that you have agreed upon are in writing. This includes the rent price, the lease term, any add-on clauses, and anything else that you have negotiated. Once everything is in writing and both parties have signed the agreement, then it is legally binding.
Commercial Real Estate Leasing vs Buying
Under certain circumstances, it may make more sense for your business to buy the industrial space rather than lease it. This is usually the case when businesses are expanding and need more space than what is available for lease. In addition, by buying the space, you have the peace of mind and long-term security that comes with owning the property.
On the other hand, there are also advantages to leasing commercial real estate. For one, it requires a lot less capital than buying property. In addition, if you only need the space for a short period of time, then leasing is a much better option.
Find a Commercial Real Estate Broker
One of the best ways to find an industrial space for lease is to use a commercial real estate broker. They will have access to all of the latest listings and can help you find the perfect space for your business. A good commercial real estate broker should have a good understanding of the market and be able to negotiate on your behalf. For over 17 years, I have successfully helped numerous businesses find the ideal industrial space for their needs. Here’s a case study of how I helped Express Industrial Services find the perfect industrial space to grow its business.
If you need assistance in finding an industrial space, feel free to contact me and I would be more than happy to help you.
The Bottom Line
Finding the perfect industrial space for your business can be a challenge. It’s very important to take the time to find a space that meets all of your needs. If you overlooked any important details, it could have a negative impact on your business. Unlike leasing an office space, there are additional factors to be aware of. By following the process outlined in this article, you will be well on your way to finding the perfect space for your business. Use this resource as a guide and if you need any assistance, don’t hesitate to reach out to me and my team.