7 Things to Consider Before Leasing Your Commercial Property

by | BiggerPockets.com

If you’re considering leasing your commercial property, there are many elements to mull regarding the market, your tenants, and the terms of the lease. Be sure and consult this checklist of things to do before leasing as you move forward.

7 Things to Consider Before Leasing Your Commercial Property

1. Research the market.

You need to know everything you can about the commercial real estate market before you even think about leasing. What is the vacancy rate for commercial properties in your area and region, for example? What are the market rates for commercial properties like yours?

If it’s an office building, you need to know how much office buildings in the area leasing for per square foot on average. If you own a warehouse, you need to have comparable data on how much warehouses lease for. Do not assume all commercial properties have the same vacancy rates and lease costs per area.

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2. Know your prospective tenants.

Once you advertise the property, you will start hearing from prospective tenants. Familiarize yourself with their business. First, you need to require their financials in order to assess their ongoing ability to pay. Make sure they have a strong and robust long-term cash flow. Second, analyze any special needs:

  • Do they want corporate signage on the outside of your property?
  • Is that acceptable to you?
  • Is there adequate foot traffic for the nature of their business?

They should be doing due diligence on this as well, but you should know enough to feel comfortable that the business you lease to will be viable.

Related: If You’re in Commercial Real Estate, You Should Consider the CCIM Designation: Here’s Why

3. Check on your zoning.

When considering prospective tenants, be sure you know what your properties are zoned for. Zoning laws and regulations change regularly, so be sure you update your knowledge for every new tenant. Leasing to a business in an area not zoned for it is not going to be viable long-term for you or them and can result in fines and fees.

4. Upgrade your technology if needed.

Is your building set up for any technology needs your tenants may have? Generally, the answer should be yes. But if your building is older, you may have to upgrade the wi-fi or cable lines to attract high-paying tenants. Access to the digital world is increasingly part of the lifeline of companies of any type. If you need to retrofit, be sure to advertise the new state-of-the-art technological capability.

5. Assess your asset management capability.

Leasing a commercial property takes a great deal of asset management. Asset managers can give you advice on a spectrum of issues that arise in commercial property leasing, ranging from market knowledge to making improvements, doing regular maintenance, watching the financial achievements of your tenants, and proactively monitoring upcoming lease rollovers. If you hire a company to handle your asset management, they can also execute projects ranging from upgrading parking lots to expanding building size. Asset managers can also ensure your buildings are sustainable and perform energy audits.

6. Consider your property management capability.

Some commercial property owners act as their own property managers, inspecting the building and receiving monthly leasing fees. Others contract the work out, either to asset managers or to specialized property managers. If you currently act as a property manager for your buildings, is it time for a change? What outside services do you need or want property managers to handle if you engage them?

probate-marketing

Related: 4 Ways Technology is Shaking Up Commercial Real Estate (& Why Multifamily Will Pull Ahead)

7. Know your tax situation.

It’s imperative for property owners to know their tax situation, particularly at a time when the nation’s tax code may be changing. Consult with advisers on any changes in federal, state and local taxes every year. Do this early, so you have plenty of time to plan for any changes in the taxes required or the allowable regulations and deductions.

Factor any changes into the rents you charge for your commercial properties. If you need equipment, be sure to check with professionals about the optimal time to buy. Purchase of business property and equipment can have major tax implications.

If you lease a commercial property, be sure to consider these seven factors before making a final decision on the tenant and the lease. You’ll be glad you did.

Anything you’d add to this list?

Be sure to leave a comment below!

About Author

Anum Yoon

Anum Yoon is the founder and editor of the millennial money blog, Current on Currency.

3 Comments

  1. yonah weiss

    Anum, Great article. Very concise, and all great advice. You mentioned in #7 “Purchase of business property and equipment can have major tax implications.” With the new tax bill passing this has HUGE implications, like 100% bonus depreciation up to $1M. Another tax benefit for commercial property owners, is accelerating depreciation, is key to maximizing cash-flow already in year one.

  2. Vivian Black on

    After years of renting a building for our small start-up business, my husband and I have decided to look for a building upgrade so we might have more have space. I appreciate that you explained the importance of seeing an asset manager as they can advise you on a spectrum of issues that arise in commercial property leasings like maintenance, market changes and financial conditions of future tenants. Thank you for your tips regarding the leasing of commercial spaces!

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