How to Find & Lease Retail Space in 6 Steps

If you’re a retailer looking to open up shop, it can be frustrating and time-consuming to find the right location. But with these six steps, you can work through all types of space problems while minimizing your risk.

Leasing retail space is generally one of a small business’s largest operational expenditures. Finding a property that matches your requirements while remaining within your budget requires careful planning, analysis, and budgeting.

We’ll guide you through six stages to lease a retail location for your business below:

Step 1: Establish a Budget

Knowing what you can afford is a good place to start. Setting a budget can help you limit your options and avoid making rash selections if you fall in love with a location. Remember to come up with a value that you’re happy with since it’ll eat up a big chunk of your monthly budget.

Depending on the sector, the maximum proportion a company should devote to its lease payment varies. Typically, it ranges from 3% to 10% of monthly total revenue. In a perfect world, your lease payment would be no more than 10% of your monthly gross sales.

To give you a sense of how much various kinds of retail establishments regularly spend on rent, here are some example data from property management firm Hartman.

Simply divide the yearly cost of rent by your total annual revenue to see what proportion of your company earnings will go toward your lease payment.

Here’s an example of a simple calculation:

Rent: $150,000 per year $2 million in gross annual income $150,000 divided by $2 million is 8%

This implies that for every $1 your company generates, $8 is spent on rent.

Factors Affecting Lease Payments

Although the variables that determine retail lease prices vary by city, the following are some of the more important ones:

1. Location: High-traffic, high-visibility sites sometimes boost leasing expenses since they put your shop in a high-traffic area.
2. Demand: If you’re looking for a handy location for consumers, such as one with a variety of other stores nearby, plenty of parking, and other facilities, expect to pay a premium lease rate.
3. Condition of the space: If a retail location is almost move-in ready, you’ll spend a lot more than for a comparable size facility that needs upgrades or remodeling.
4. Setups and equipment for plumbing, gas, electric, and temperature control, such as walk-in freezers, may be required. Any existing or included equipment, depending on what the space currently has, might affect your monthly leasing rate.
5. Length of time: The longer the lease period, the more negotiating power you will have. Short-term leases or temporary retail agreements such as a pop-up shop or a store-in-a-store may still be negotiated.
6. Lease incentives: If the lease includes incentives like frequent renovations, the cost will rise. See if you can negotiate this and manage the improvements yourself to save money on your lease.
7. Competition for space: Commercial space is scarce in many high-growth cities. You aren’t the only possible tenant the landlord is evaluating, and someone else might outbid you for the shop space you want.

Costs of a Commercial Lease

Aside from the leasing base cost, there are a few extra one-time and ongoing expenses to include in your budget.

• Property taxes: This fee accounts for a substantial portion of the costs associated with leasing a space and varies by state.
• Commercial property insurance costs vary, but they are ultimately determined by the size of the facility. The majority of shops spend less than $45 per month on insurance.
• Upkeep of common areas: The cost of this service varies based on the property’s maintenance requirements. Take into account shared space maintenance fees such as security, gardening, and cleaning, among others.
• Estimate the cost of energy, water, heat, sewage, internet, and any other services you’ll use. For comparison, merchants spend an average of 10.66 cents per kilowatt-hour in 2020. According to some estimates, commercial buildings spend an average of $2.10 per square foot in utility costs.
• Building: Many retail leasing locations are naked, vacant, and in desperate need of some design and construction work. Make sure to set aside money for building and interior design so that your store is aesthetically attractive and reflects your company’s identity. A new certificate of occupancy may be required if major improvements are made to the structure.
• Supplies and equipment: Some rooms have display racks and a check-out desk, while many do not. You’ll need to put money into furnishings and equipment first since these costs pile up rapidly.

When it comes to your leasing budget, be cautious since you’ll most likely need extra cash on hand to operate your company day to day and cover unforeseen expenditures.

In general, temporary retail activations are less expensive than creating a permanent brick-and-mortar location. Throughout 2021, pop-up store expenditures are predicted to be much lower. However, many firms should be able to negotiate an affordable lease in 2021; commercial rent costs are down more than 11% from 2019.

Fee charged by the broker

If you work with a broker, remember to factor in their fee. Commercial real estate brokers who lease retail space generally charge from 7%–10% of the total lease costs. For example, if you sign a three-year lease at $50,000 a year ($150,000 total), and your broker charges 10%, the Fee charged by the broker would be $15,000.

Fees may also be charged per square foot, ranging from $1 to $5 per square foot depending on the term of the lease. Let’s imagine you sign a three-year lease for a 5,000-square-foot facility. Our broker charge would be roughly $15,000 (5,000 sq. ft. x $3).

Step 2: Determine Your Space Requirements

When leasing retail space, you don’t want to pay for square footage you won’t use, but you also want enough room to be comfortable and expand. Each company’s space requirements are different, however here are some frequent places where room is required:

• On the sales floor
• Stockroom
• Offices
• Bathrooms
• Rooms for dressing
• Additional storage options
• Counter for check-out

If you can come up with a rough estimate of how much area you’ll need, perhaps 250 square feet or less, you’ll be able to reduce your options dramatically.

Here’s a basic formula for estimating the size of your On the sales floor based on sales goals:

Sales per square foot = Size of Selling Space + Gross Sales Volume

For more information on how to set up your area, see our post on arranging your retail shop layout.

Step 3: Locate four or five high-quality retail space alternatives.

Now that you’ve determined your budget and size needs, you’ll need to find four to five good possibilities for renting retail space. You don’t want to restrict yourself to just one straight away. Instead, come up with four or five options that could work and then compare them to discover the greatest match. You’ll also have greater negotiating power if you have more possibilities.

The following are the most effective methods for locating property:

There is no alternative for first-hand knowledge of the area. You might engage a local broker to benefit from their extensive local expertise. They’ll be familiar with the area’s population and demographics, as well as where the biggest retail traffic is. If they’ve already worked with the landlord, that’s even better.

If you want to go the store-within-a-store route, take a drive around the neighborhood. Take note of which shops are not only complementary to your brand and goods but also have a consistent and healthy level of foot traffic.

You may go to Google and search for terms related to the sort of space you want. LoopNet, Craigslist, and Catylist are just a few of the sites devoted to commercial real estate listings. Featured listings, lease costs, sorts of companies that are authorized to operate in the space, property locations, and agent contact information are frequently included on these sites.

You may also look for accredited agents on the National Association of Realtors (NAR) website. However, there are internet listings for short-term and temporary retail rentals if you’re searching for a pop-up spot. Go—PopUp is only one of many examples.

Subscription services for property listings might assist you in locating retail properties. This has the benefit of being much more than a location tool since it provides in-depth research of local markets, demographics, and other relevant data. However, depending on the bundle you choose, it will cost you roughly $300–$1,000 every month.

Step 4: Assess Each Possible Location

Now that you’ve narrowed down your choices, it’s time to choose the best one. Your company should be located in:

• A secure environment: Customers will not want to shop in your business if they do not feel safe. Enter your ZIP code into MyLocalCrime to discover how your possible location compares to the neighboring regions.
• Where do your consumers hang out? Customers will flock to your shop if it is located in an area where your target demographic resides. You may seek overall demographics for a region or city using census.gov’s fact-finder tool. You may also attempt to figure out how much foot traffic a certain site receives.
• In the vicinity of your competitors: Although it may seem paradoxical, being close to your competitors ensures that you will have clients interested in your offering. This is particularly important for new organizations that do not yet have a consumer base.
• Nearby businesses that are compatible: Restaurants, bookshops, and coffee shops work nicely together. Pharmacies and medical offices function nicely together, while apparel shops operate well alongside cosmetics and shoe stores. Pop-up locations are ideal for this sort of cooperation.
• Near public transportation/major roads or locations with a lot of foot traffic: Customers must be able to see and visit your retail location.

Step 5: Take a look at your lease.

It’s time to evaluate your lease now that you’ve chosen a location. This may be a difficult procedure, particularly with all of the legal jargon and lease jargon. Working with a commercial real estate professional can assist you in choosing what should and should not be included in the lease, as well as ensuring that you make the best selection for your company.

• Clauses in Retail Leases
• Types of Retail Leases

Examine what you can and can’t do with the place you’re leasing while reviewing your lease. Before you choose a place for your company, keep the following elements and terms in mind.

• Exclusive Use Provision: If your firm relies on foot traffic, you should strive to include an exclusive use clause in your contract. An exclusive use agreement forbids your landlord from renting space in the same building or retail complex to one of your rivals. This provision is perfect for pop-up businesses, transitory spaces, or any other form of cohabitated area.
• Co-Tenancy Provision: If your company relies on foot traffic brought in by another neighboring business, you might consider including a co-tenancy clause in your lease, which permits you to terminate your lease if the anchor tenant quits. This is particularly relevant in shopping centers and malls with one or two major retailers that account for a significant amount of the mall’s visitors.
• Restrictions on renovations or construction: If you need to make changes to the space, ensure sure the lease spells out exactly what you’re authorized to do.
• If you want to put up-sale signs, open/closed signs, or other types of signage in your business, be sure you know what is and isn’t permitted. Take notice of who is in charge of designing and funding any conventional storefront signage.
• Sublease Clause: Whenever possible, you want to have the ability to sublease your space. This clause offers some protection if you can no longer pay the rent or expand to the point where you need to move into a larger space. This can also provide you with the flexibility to host pop-ups, pop-ins, or store-within-a-store tenants in your space. This is especially important in shopping centers and malls that have one or two very big stores that are responsible for a large portion of the mall’s customers.

Various forms of leases are available from various landlords. The sorts of charges that each party will bear are the key variations between lease forms. The sorts of leases you may encounter, what they represent, and how they will affect your monthly leasing budget are listed below.

1. The most frequent kind of arrangement is a triple net lease, sometimes known as a triple N or NNN lease. The tenant bears the bulk of the expenditures under a triple net lease. Only structural repairs are the landlord’s responsibility.
2. Single Net Lease: In a single net lease, the tenant is only responsible for paying utilities and property taxes, while the landlord is liable for everything else, including insurance and upkeep.
3. The renter is liable for utilities, property taxes, and insurance charges under a double net lease. The landlord will be responsible for the upkeep.
4. Modified Net Lease: In this sort of lease, the tenant and landlord divide the costs.
5. Short-Term Lease: Typically utilized for pop-up and temporary spaces, short-term leases allow landlords to tailor obligations to the needs of the company utilizing the space.

Step 6: Make a Lease Agreement

In your lease, try negotiating the following items:

Base Rent

You might strive to lower this, particularly if you plan on renting the space for a lengthy time. If you plan to remain for less than three years, though, you should concentrate your negotiation efforts elsewhere.

Rent Increases

Landlords would often attempt to include an annual rent increase based on the consumer price index or another metric into the contract. These are also known as escalations, and renters should come to an agreement before signing any contract.

Utilities for Packages

Utilities go into your earnings as well, so ask if this is something the landlord can include in the basic fee. Try to negotiate certain issues like water and sewage, even if they won’t agree to include everything.

Term of Lease

Term of Lease varies from state to state but are often one to five years in duration. The long-term can be daunting, especially if you are just starting out. The majority of lease agreements require a tenant to pay the rent whether their business survives or not, so it can help to be conservative and negotiate your lease duration. Do note that a shorter lease duration increases the lease base rate unless you have arranged a unique situation, like a pop-up shop or temporary space.

Clauses for an emergency

Unforeseen occurrences occur, so check if you can add a condition that allows you to terminate the lease early in the case of an emergency. Consider the effects on the area around the place, such as lost sales and bankruptcy, environmental pollution, and so on.

Security Deposit and Down Payment

In many business agreements, renters are required to pay up to three months’ rent in advance. To save money, try to negotiate this for one or two months.

Conclusion

Allowing yourself some time to assess and examine your alternatives is the greatest way to prevent making rash judgments. After all, your retail location is the most accurate reflection of your company. You’ll need to do a lot of preparation if you want to lease retail space for your company, but we hope that our step-by-step tutorial provided you with a solid sense of how to get started and, eventually, seal a terrific and cost-effective deal with a broker.