This regularly-scheduled sponsored Q&A column is written by Will Wiard, Arlington-based real estate broker, voted one of Washington’s Best Realtors of 2015 by Washingtonian. Please submit your questions via email.
Q: I’m starting a new company and want to know about the steps to take to lease commercial space?
There are many layers to the commercial real estate market. Knowing where to start can be confusing, particularly if this is your first time hunting for the perfect business location and lease. Here are a few things to think about to get you started.
Define what type of property are you looking for. When renting commercial space you’ll need a strong understanding of your ideal space, size and location requirements. Are you heading up an accounting firm and looking for a standard office space with a conference room and private offices? Or are you running a shipping company where you’ll need industrial space with a loading dock? Or are you opening a wine shop and looking for storefront retail in a high-traffic location? Each business type has its own needs. Make sure to think through these specifications and bring them to the table from the very beginning. You may also want to consider whether you are open to exploring a shared space or an incubator. If you’re a small company or start-up, this kind of space can give you the ability to grow with lower overhead than managing a lease on your own.
Ensure your finances are in order. Similar to renting a residential space, an assessment of your finances and income will be conducted by a potential landlord to ensure your financial situation is fit for tenancy. This can help them better gauge your ability to pay on time and stay in the space throughout the term. Many landlords will ask to see a financial statement for your business as part of the initial process. In more competitive markets, a landlord may not consider your company for a space because of a lack of financial history or because your company business model doesn’t fit the space or there are other companies in the same location from the same industry.
Think about your ideal lease term. On average, a commercial lease can be three-to-five years in a lower density market and 10 years or more in a higher density market. In some cases, a tenant can sublet space for a shorter period of time if they take over an existing lease. However, lease terms for a sublet are handled on a case-by-case basis and the types of property can vary greatly.
Discuss your options for rent abatement. Many businesses entering into new lease agreements for commercial space plan to undergo property updates to maximize the use of the space. Rent abatement (i.e., free rent) is often negotiated as a part of these contracts when the business owner plans to make these updates. If you are planning updates, make sure to ask about rent abatement for tenant improvements during your negotiations often listed in a Letter of Intent (LOI). In some cases, a landlord will give a tenant a few months of rent abatement to build out the space or make capital improvements.
Investing the time upfront to define your property preferences and requirements can help you maximize efficiency throughout the process. Finding the right space can be challenging and in some cases it takes months before the right property comes on the market.
I’m hoping some readers will share any additional advice they have in comments.
Thank you for this week’s question. Please keep them coming to [email protected]. This is also a great place to reach me for anyone looking to buy or sell a home in the Arlington area.
The views and opinions expressed in the column are those of the author and do not necessarily reflect the views of ARLnow.com.