How Long of a Lease Should I Sign for my Commercial Property?0

Posted by Thomas Miller, CCIM

paperworkChoosing the length of a lease can be one of the most difficult decisions you will need to make in your commercial real estate transaction, and there’s no one-size-fits-all answer. This is where your agent’s experience/expertise comes into play. A high quality agent should give you advice like you’re family or a close business partner, instead of advise designed to maximize his or her lease or sales fees. Use this list to make sure you’re thinking thoroughly about your lease length options, and remember that market vacancy conditions and your property’s landlord will both play into your final decision. Again, look to your experienced agent for guidance here. 

1. Is my business stable to the point that I don’t expect my future space needs to change much?

2. Is it possible to keep my lease flexibility in case I need to expand or downsize?

3. Does the space that I am leasing require a substantial investment in tenant improvements? Who really pays for these tenant improvements? If I have to pay for all or some of them, does the extra have to be paid forever?

4. Do I expect rents to increase significantly in the future? What accurate historical statistical data can my agent produce to lead to an informed decision based on future rent trending?

5. Is the location of my new space very important to the success of my business? Does a specific location provide an immediate or future potential strategic advantage for me, such as rail access, freeway proximity, proximity to labor, proximity to overnight hubs, etc.?

6. Is relocating my business hard or costly to do? Do I always have to pay to relocate or are their alternative resources available to help ease my costs for this?

7. Is my rent lower if I sign for a longer term? Be aware that the laws of basic economics don’t always apply, and market segment over or under supply often trumps. Market phasing (recession, recovery, etc.) also tends to strongly factor into this question. Sometimes the best rates are for shorter terms. For more on important market trends and phases, read our post, “Northern Nevada’s Current Phase in the Real Estate Cycle.”

With your agent at your side, these decisions can be managed to best suit your needs and future flexibility. This is the area of your real estate transaction in which your agent’s value is of paramount importance.

Learn more about the leasing process with our 13-Step Lease Process Guide. Get your free copy today.

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About the Author

Thomas Miller, CCIM

Thomas Miller, CCIM is the president and broker of Miller Industrial Properties in Reno, Nevada. He has worked in industrial real estate since 1991, with 15 years of previous experience designing and building industrial warehousing and manufacturing facilities in the northern Nevada market. Contact Tom at tom@mipnv.com or 775-742-9891.

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