A few weeks ago, we talked about the dos and don’ts for leasing a medical office space in the Baltimore-Washington corridor. Today, let’s take a look at what you need to know when leasing a retail space.
Determining the Budget
First and foremost, it’s important to understand your real estate costs. How much money should be allocated to your monthly rental expense?
Below is a chart from Hartman that breaks down typical rent-to-revenue allocations per business type.
Based on this information (and your own personal finances/allowances), make sure the space you have your eye on fits within your budget; only lease what you can afford. Many experts agree that the best strategy is to set a conservative budget; the unexpected is inevitable and you’ll always need extra money to run your business.
Considering the Important Factors
Other important factors to consider when leasing a retail office space include:
- Location. High traffic and visibility will likely be paired with a higher cost per square foot. However, the perks of exposure and foot traffic can ultimately translate to increased sales. Don’t underestimate the value of being at the center of the action and in a prime location.
- Demographics. Consider what area your ideal customers live in; if they’re in the suburbs, for example, you probably don’t want an urban storefront or somewhere else out of their reach.
- Parking. Are there enough parking spaces available, and/or is it close to public transportation? Generally, most retail developments have a designated parking ratio or number of spots per square foot (about 5-8 per 1,000 square feet); you’ll want to keep this mind to ensure your customers have an easy time accessing your store.
- Space Condition. It’s rare to find a space that’s move-in ready and tailored to your business’s needs. In most cases, you’ll need at least some improvements or upgrades. It’s important to have a clear understanding of the timeline and cost of your buildout and who is footing the bill–whether it’s you or the landlord or a combination of the two.
- Lease Terms. The longer the lease, the more bargaining power you have. However, don’t opt to commit to a space for a longer period of time just to get a better deal–you should be confident in that kind of long-term commitment.
- Tenant Mix. Knowing who your neighbors are is imperative when leasing a retail space. Surrounding businesses can help or hurt your operation; try to get your store near complementary shops that will create positive synergies. For example, if you’re opening a hair salon, having a nail salon close by could increase your chance of referrals if you establish a relationship with the owners.
Finding the Ideal Space
Once you have an understanding of your real estate needs, it’s time to begin the hunt! Online brokerage sites like LoopNet are helpful and oftentimes this is where most people start, but we recommend consulting with a local commercial real estate expert for help. The breadth of knowledge that you can gain from working with a quality commercial broker is far superior than what a listing service can provide.
Working with a broker or agent allows you to hit the ground running as you begin to navigate the critical path of commercial leasing. It’s important to think of your relationship with your broker as a partnership. As with any successful partnership, it’s important that both parties are on the same page in regard to your vision, goals, and objectives.
From there, with a clear understanding of your goals, brokers and agents help clients manage projects from start to finish. Real estate experts provide key insights and market knowledge that are applied throughout the process. From site selection, physical tours, and drafting proposals to financial analysis and negotiating deal terms, they are with you every step of the way.
If you need assistance or guidance on finding the best location for your retail space, Murphy Commercial Real Estate is here to help. We have over 15 years of experience helping business owners big and small find their next space in the greater Baltimore-Washington region. For more information, reach out to us today!
For tips that will help you understand different lease types, refer to our blog on understanding commercial leases.