Leasing a commercial property that you own can be rewarding — first and foremost, you’re bringing in revenue; secondly, you’re providing space for another business owner to establish themselves and serve their customers. But before you list your commercial property, there are a few important considerations you should bear in mind. Running through this short but crucial check list of three major to-dos will ensure that the occupancy is a smooth transition and the relationship is mutually beneficial for both you and your new tenant.
#1: Know what the space is for.
This may seem obvious, but if you acquired the property only recently, you should know what type of commercial space it is so you can market it to the right potential tenants. In some cases, this might come down to zoning. Certain zoning laws designate a property for office space rather than for retail or a restaurant, or vice versa. A business owner can request to have zoning changed, but it’s a legal process that can take a long time.
Similarly, the property might be set up to fit a certain type of business. Unless you plan to do major renovations to fit a tenant’s needs (we’ll get to that later), the layout of the commercial space is going to determine what sort of business can go in there. If the space was previously used as a restaurant, it already has a dining room, bar and kitchen — making it easy for another restaurant to move in there.
That’s not to say a retailer couldn’t move into a restaurant space and make it work for their needs, but it will probably take some expense to modify the property. You can avoid that trouble, which may or may not turn out to be profitable for you in the long run, by finding a tenant that’s ideal for the property as it is.
#2: Find the right price.
You’ve probably heard the same thing about residential real estate: You need to market the property for what it is worth. If the rent price is too high, people will pass and it will sit on the market for too long; if the rent price is too low, potential tenants will suspect something is wrong with it. Your real estate agent can help you determine the appropriate rental rate based on location, condition, traffic and rental rates of similar nearby properties.
#3 Make the necessary improvements.
As with finding the right rental rate, this is a necessity that’s the same as in residential real estate. Assess what improvements your commercial property needs and undertake the necessary changes to make the property attractive to a potential tenant.
This means both exterior and interior changes. Inside, give the walls a fresh coat of pain and either replace or steam-clean any carpets. Outside, be sure to power wash the exterior, repave or fix any cracks in the parking lot, and freshen the landscaping to give the building curb appeal. This will make the property attractive not only to your tenants but also to their customers.
In some cases, there will be changes that a tenant requests — this could be something simple, such as repainting some of the walls, or something bigger, such as replacing the wall-to-wall carpeting with tile. The tenant might even want to make a major change like installing a window in a wall where there currently isn’t one.
Such changes will make the property more attractive for the tenant, but how advantageous are they for you as the property owner? You could decide to let the tenant make the changes at their own expense, or you could invest in the changes at your expense to accommodate your tenant. As a general rule, don’t invest in making any major renovations to accommodate a tenant unless they are going to occupy the space for more than two years, or unless you think those changes will be lucrative for future occupants and increase the value of the property. A commercial real estate agent will be able to offer you advice in this regard.
There is much you’ll learn as you go about preparing and marketing your commercial real estate property, but these three items on your to-do list will ensure you’re off to a strong start.