Negotiating for Retail Space
With retail vacancies at 10.3% and lease rates dropping, small businesses looking for retail space or renegotiating leases are in a prime position to secure better terms. Key tips include negotiating for lower rent, free rent periods, improvement allowances, and capped rent increases, while working with a professional to ensure favorable lease terms and long-term security.
.jpg)
Blog content provided by Barbara Weltman, Publisher of Big Ideas for Small Business ®
The Wall Street Journal reports that vacancies in retail space in the U.S. now top 10.3% (up from 8.4% a year ago). What does this mean to small businesses looking for space or those already in malls and shopping centers with leases coming up for renewal? It’s a renter’s market.
As retail lease rates continue to decline and the near-term outlook is more of the same, tenants can pick up space at bargain rates. Tips to keep in mind include:
For new leases: After determining where you want to be (consider working with an architect to make sure the desired space will meet your needs so you don’t rent more space than you actually need), negotiate with a landlord to obtain the most favorable terms. In this market, some advantages a tenant might achieve:
- Low rent. Find out the “going rate” for the space you want; then negotiate a lower rate in view of the declining rents and growing vacancies.
- Free rent for some period. In very distressed areas, a year of free rent is possible.
- Improvement allowances. Landlords may pay for a certain amount; obtain favorable terms here. In the very least, the landlord should pay for any improvements (e.g., widening doors, etc.) necessary for compliance with the Americans with Disabilities Act.
- Early access. You want access (two to three weeks) to your space before the term of the lease begins so you can get phone and IT hookups in place.
- Rent increase caps. Typically, rents escalate over the term of the lease (usually in line with CPI increases). Try to avoid any increases for at least the first two years.
- Renewal terms. You want the ability to remain in the space if your business is going well. Try to get a renewal rent amount now (not one based on the going rent that may be applicable down the road).
For renegotiations: Start the process at least a year to a year and a half before the end of your lease. This will give you time to go back and forth with your landlord and, if renegotiations fail, to find new space before your lease is up.
While the commercial real estate market is very soft, landlords know that you’ve already invested a considerable amount in your space and are not eager to move. Recognizing this factor can help you achieve the new terms you want.
Work with a professional. Commercial leases are complex legal documents. Make sure you work with a knowledgeable attorney who can review the lease terms and protect your interests.