Commercial Property for Your Business
Whether opening your first boutique or looking for warehouse space, locating the ideal commercial property for your business is essential. However, while choosing the perfect location is important, no matter what type of property you are searching for, there are other factors to keep in mind. For example, determining the amount of funding required to rent or purchase a property with the ideal combination of square footage and location is essential.
Locating and acquiring the best commercial real estate (CRE) for your needs can be best achieved by taking the steps described in this article. Consider these steps as due diligence. You’ll want to determine the best location for your business first. This determination includes a study of a potential location’s market indicators.
How Market Indicators Help Define Your Ideal Location
The phrase “market indicator” describes one or more data types that tell an individual if a potential purchase is the best choice. Market indicators, also called economic indicators, aren’t limited to commercial real estate. For example, stock traders use market indicators to help forecast stock movements before recommending that a stock be purchased or sold.
The ideal market indicators you should research will depend on the type of business you own or manage. For example, consider these if you’re shopping for office property.
- Staff convenience. Will the new office be easy to reach by your staff’s preferred means of transportation, or will some incur expensive commuting costs?
- Infrastructure. For offices, this would include access to modern office requirements, such as Wi-Fi and even cell phone service. (Some building materials block cell phone signals.)
- Noise levels. High noise levels from traffic or surrounding buildings can lower your staff productivity by up to 66%, according to a recent study.
While other businesses will have their own market indicators, all will share these three. Location data help you choose a location using comprehensive, specialized market indicators. For example, you can buy data that tells you exactly how much foot traffic will pass your business. Hundreds of data providers currently sell specialized packages to new business owners.
Here are fundamental factors to consider for different types of commercial real estate.
- Industrial/Warehouse: Accessibility from major highways, rail depots, and airport cargo facilities.
- Retail: Neighboring businesses and/or attractions that will help increase your foot traffic without being in direct competition.
- Multi-family: Property that provides safety and popular amenities to your potential tenants.
While you probably have already formed a ballpark budget for your commercial property lease or purchase, it’s time to look closer.
Buying vs. Leasing a Commercial Property
Whether buying or leasing your space, you must prepare a comprehensive budget. A budget will help you determine what rent or loan payments your business can afford without calculating your business income.
A business budget usually consists of two separate spreadsheets:
- The cost of purchasing or leasing your property.
- The working capital to cover day-to-day expenses and salaries.
Since you will need to decide if you are buying or leasing your property before you can proceed to the next steps, the following section provides details of both options.
Buy or Lease?
Buying offers similar benefits as buying a residential property — no rent increases, equity growth, and the option to sell at a profit. Also, you can earn additional income by leasing any space your business doesn’t need.
However, the initial costs will be higher than leasing.
- Most commercial mortgages require a 25% to 30% down payment, except Small Business Association (SBA) loans, which accept lower amounts.
- Your credit score will probably need to be in the higher range.
- The loan term may only be 5 to 25 years or shorter.
Leasing your commercial property won’t require a large cash layout, and you can negotiate your lease details. However, a commercial lease may cost more than your rent per square foot (PSF). For example, lease payments may include building insurance, real estate taxes, and maintenance expenses. Your total monthly leasing costs will be part of your overall budget’s operating expenses.
Preparing a Commercial Property Budget
Budgeting may be the most challenging task facing you. If you have never prepared this type of budget, you may opt to locate and download a template from the internet specific to your type of business.
Here are some financial basics that apply to all businesses:
- Calculate your expected monthly gross income. Simply stated, this is what your business will earn.
- Estimate potential losses. These losses can be caused by anything from theft to industrial fines to a winter storm.
- Determine your operating expenses. While these vary by business, the most common ones are inventory costs, salaries, insurance, and equipment. It will also include rent if you’re leasing your property.
- Calculate your effective gross income by subtracting operating expenses and potential losses from your monthly gross income.
If any tasks in locating commercial property appear intimidating, or if you don’t have time for all of them, consider professional assistance.
Working With CRE Brokers and Attorneys
Whether you need assistance finding the ideal property, negotiating a lease, or have questions about a legal topic, working with an experienced CRE broker or attorney can help you succeed in several ways.
A CRE broker may know about a commercial property available for sale or lease soon but has not been added to public listings. Brokers are beneficial if you’re unfamiliar with the city or neighborhood you’re considering.
A CRE attorney can assist you with negotiating a lease that’s in your favor instead of your landlord’s. They can also advise you about location zoning, city planning codes, etc.
What is the best way to find assistance? Ask for referrals, check online reviews, and research their past deals. But remember, locating the ideal commercial property for your business is essential.