One of the most important aspects of starting a new business is finding the right location for it. Of course, this means analyzing the market, assessing foot traffic, and ensuring you pick somewhere accessible to your customer base. But don’t forget something even more fundamental: You need to find a location you can actually afford.
Consider this: If you end up leasing a space where the monthly rent is sky-high, it could significantly erode your profit margins; meanwhile, finding a better deal on a lease leaves more money on the table for you to invest in the business.
The good news for retailers is that there is generally some wiggle-room to negotiate the terms of the lease—but how can you ensure that you’re getting the most favorable terms possible?
Here’s a quick guide.
Understanding Retail Leases
First, understand that whenever you lease a retail space, you’re committing to stay there for a certain span of time; the standard is for a minimum of three years, but of course there are exceptions.
Your formal lease will often include all of the following items—though again, none of this is set in stone:
The rent term. This just specifies the amount of time you agree to stay at the location; again, three years is the norm.
The base rate. Your rate may be calculated either based on square footage (anywhere from 90 cents to three bucks per square foot) or a percentage of the gross sales (usually around six percent).
Maintenance responsibilities. More often than not, it falls to you to keep up with the electrical, heating, air conditioning, plumbing, and sewage systems.
Utility costs. Often, water and sewer services are factored into the base rate—but everything else you’ll pay for separately.
“Triple net.” This is a monthly fee that encompasses insurance, common area maintenance, and taxes. This can add quite a bit to the base rate—up to 35 percent a month in some cases!
Prepaid rent. The norm is one to three months. Note that there may also be a security deposit of up to two months’ rent.
As for how you begin the negotiation process, start by getting in contact with a commercial real estate broker—like Kuester CRE—and asking for some proposals. Collect a handful and compare them; this should help you get a sense of the basic terms and price range you’re looking at.
You can also ask your broker to negotiate the terms for you, especially if you see a couple of potential locations that you feel good about. If you choose to negotiate on your own, we recommend finding a couple of locations—ensuring there’s some real competition. We also recommend having your business lawyer look over the lease and simply let you know of any danger signs or red flags.
From there, submit a written counter-offer, responding to the initial proposal. Some things you might ask for include lower rates; graduated lease terms; limits on those triple net charges; utilities included in the base rate; or either longer or shorter lease terms. You can even request free rent for the first few months!
Note that you are probably not going to get all of these concessions—but in many cases, you’ll be able to get at least some of them. Once you arrive at terms you feel good about, finalize things and get ready to move in!
Contact a Carolina Commercial Real Estate Broker
If you’re ready to start looking for your retail space, we invite you to give us a call. We’d love to show you some options and even help negotiate for you. Call our toll-free number: 855-723-2500.