Small Leases: Part 1 - How to Search for Commercial Lease Space


As a commercial real estate agent in a mainly residential office, I often deal with smaller tenants. Most smaller tenants ("mom and pops" as the slang goes) are much less sophisticated than large national and international organizations with substantail commercial leasing experience, and can only draw upon the experience they have...residential real estate. And therein lies the problem. In residential real estate clients often fall in love with and buy something totally different than they set out to buy. In commercial real estate leasing, that doesn't happen; you must lease a property that fits your needs which is why that commercial agent asked you so many questions before showing you the property you called on, and in the end wouldn't even show you the one you called on. What's up with that? Well, let's find out as we examine How To Search For Commercial Lease Space. Please note that these comments are intended for the Edmonton commercial real estate market and surrounding areas.


The first thing you absolutely need to do is put your needs down in writing, and be specific. Even if you fall in love with a space, if it doesn't meet all your needs it won't be long before you wish you never signed that lease.
Some of the obvious things to consider are;


Size of Space: Forget how much it costs, just ask yourself in a perfect world how much space is not too big or not too small.


Cost: At this point, don't get into analyzing different spaces, just ask yourself realistically how much you can afford. Remember leases have three components: Lease Rate, Operating Costs, and Utilities. We will discuss this point in more detail later as it is a major issue in small leases, but for now determine your budget for all three combined.


Location: Where would your customers expect you to be? What works best for you? Remember where you live and where your customers are.


And the less obvious things to consider are;


How Pretty Are You? Financially speaking of course. Just because you want a space, the landlord is not going to escort you in on the red carpet. At the end of the day/lease, you leave and the landlord still owns the property. Most landlords will want to know intimate financial details about you and your company. Do you have a business plan? How many years have you been operating? Show me your last 3 years of financial statements. The larger the landlord the more demanding they will be. Their cash flow and the value of their properties depends upon the quality of the tenants. Get your financial information ready.


Employees  When choosing a location, if you have any employees will the want to drive to that location? Be sure to consider where they live also.


Ceiling Height  This is most commonly important in industrial situations but is often important in retail also.

Parking  Is there enough parking for your employees and clients? How many stalls (if any) are assigned to you? Is parking on a scramble basis? Is there on-street parking


Accessibility: What sort of accessibility do you need? Left turns onto or off of a busy street will chase customers away. Gas stations locate so that people can turn right into and out of their stations on their way homes after work. Drive through coffee shops locate for right turns on the clients' way to work in the morning (gotta have that morning coffee).


Visibility:  Is your business a destination business where people come to you specifically for your service or the products you carry, or is your business dependent upon walk-in or drive-by traffic? Remember high visibility locations cost more.


Utilities: Do you have any specific utility needs?

Layout:  What would be your perfect layout? You will likely never find it, but having a draft design of the perfect layout will help you choose your space better.


Tenant Improvements:  Since you won't find the perfect layout, you had better budget a realistic amount for tenant improvements.


 I could go on endlessly, but there is a good list to get you started. This covers the main points to consider when preparing to lease space.


The Search


When To Start Searching


I am often surprised by the number of folks who call on lease space and I find they need something within a month or two. Not going to happen, at least not in the foreseeable future in the Edmonton commercial real estate market. Even in a balanced market, you need to commence your actual search at least six months as a minimum before you need to locate. The search will take at least a couple months (possibly more), the negotiations will likely be about a month, and you will need at least a month, more likely two, to complete your tenant improvements and move in.


Commercial Real Estate Agents


So many small tenants do their own searching, calling the listing agent on each property they find. Let me put this gently...don't do that. Check with any regulatory body in the real estate industry and they will tell you it is in your best interests to have your own agent working for you. When we list a property for sale we are legally bound to get the most money and best terms and conditions for our your expense. So if landlords have their own agent getting them more, why not have your own helping you pay less?

Do your research before you begin your property search. Interview several agents and find ones that are prepared to work with you. Check what their experience is, the services they provide, how they get paid and what their expectations are from you. Don't be surprised if you are asked to sign what is called "Buyer's Agency". Real estate agents don't get paid a penny until you actually lease space through them and subsequently take possession. Adding to that, the agent's fee on a small lease is not very large and many agents, especially the better (and busier) ones, will not be likely to take you on as a client without a reasonable assurance of a payday at the end of the day.


The Actual Search


Don't be surprised if you find numerous properties your agent didn't find (or didn't tell you about). Commercial real estate is much different than residential. Most properties for lease never make in onto a listing service like the MLS. Because of this, searching for commercial properties is much more difficult and time comsuming than searching for residential properties. You will be in this together with your agent. The real benefits of your real estate agent show up in the lease negotiation process...and that is our next topic in this series next Friday...


Small Leases: Part 2 - Negotiating The Lease

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