Commercial Real Estate Basics – Understanding Lease Types, Terms and the Commercial Leasing Process
OK, so you’ve written a business plan and gotten a shiny new business license, and now you’re ready to find a space for your new business. Now what?
First, you’ll need to figure out what type of property you’ll be needing. There are four major types of commercial properties, and the type of property you need will be determined by the type of business you’ll be operating.
Types of Lease Properties
- Office – If you just need a place to put your desk and copy machine, this is the type of property you’ll be looking to lease.
- Industrial – Will you be manufacturing products? Working with hazardous materials? Shipping, receiving, or storing products? Or perhaps you’ll be opening an auto repair shop. These are the types of businesses that will require an industrial zoned space.
- Retail – Opening a boutique, day spa, café, hair salon, bicycle shop, or grocery store? These are the types of businesses that require retail space.
- Ground Leases - Unless you have plans for a parking lot, chances are you won’t be wanting a ground lease. They are typically given to larger corporations who are looking to build on the property and stay for an extended period of time – i.e.. 100 years.
Know your Lease Terms
There are four types of leases, which may or may not include common area maintenance.
- Full Service Gross – Generally associated with multi-tenant office buildings; the asking rate include all building services, utilities and janitorial, property taxes, insurance and common area maintenance (CAM).
- Industrial Gross (Single Net) – Generally associated with office/warehouse and some small office buildings; the tenant pays for his own utilities, janitorial and trash while Landlord covers the property taxes and insurance.
- Double Net – Generally associated with retail or single tenant property; the tenant pays for all services, the taxes and insurance and system maintenance while the Landlord will pay to maintain the roof and building.
- Triple Net (Absolute Net) – Generally associated with retail or with free standing, single tenant property. Tenant pays for all services, the taxes and insurance plus any maintenance to building.
- Common Area Maintenance (CAM) – CAM charges are sometimes added to quoted rates and most commonly found in industrial parks and smaller retail strip centers; they refer to the cost of maintaining the parking lots, sidewalks, landscaping and signs common to all the tenants.
The Commercial Leasing Process
From the tenant side, there are 7 steps in the commercial leasing process.
- Define your requirements – Do you need an office or a retail space? Light industrial or warehouse?
- Locate suitable property – You’ll want to get a commercial real estate agent to help you out with this. They know the market, and they don’t cost the tenant a thing.
- Tour properties – Check out the properties in person. When you get inside that 10,000 sq. ft. property, you may realize that you only really need. 5,000.
- Make a proposal to lease (Letter of Intent LOI) – Again, your commercial realtor can help you with this.
- Space planning and architectural evaluation – Some spaces will be raw and need walls, kitchens and/or bathrooms.
- Negotiate the lease contract (Reviewing lease contract) – Your commercial realtor can help you with this.
- Close the transaction – Sign the lease and get the keys!
Melissa Shimmin is an award-winning designer who has been helping companies both big and small create, evolve and strengthen their identities, branding and marketing collateral for more than 15 years. And yet, Melissa is more than just a designer: she takes a big picture perspective, combining marketing strategy and copywriting with design to create stronger, more impactful branding and identity for the companies she partners with. Check out her work at Shimmin Design. Tags: commercial real estate, industrial space, lease, office, retail, warehouse