Caitlin Burke  /   October 26, 2020

For a lot of business owners and managers, leasing commercial space for their business is a giant step and a largely unknown process. Embarking on a search for the perfect new location for your business can be overwhelming. Commercial real estate is advertised differently than residential real estate and it can be difficult to know where to start. Questions like “Where can I look online?”, “Do I need to hire a broker?” and “How much will it cost?” tend to arise.

Commercial brokers can be a valuable asset to tenants looking for new space for their business. Not only can they explain nuances of commercial leasing, but they can also advocate for your business needs with the building owner, provide access to commercial listing databases, and share their knowledge of the market trends. Hiring a broker to represent you is smart and cost effective, as most broker’s commissions are paid for by the building owners, not the tenants themselves.

Before you hire a commercial broker, it’s smart to get organized and clearly identify your needs. There are five steps to considering a business move.

1. Outline what you are looking for:

• Establish what you like and don’t like about your current work environment: This gives your broker some insight into why
you’re looking for new space and allows them to get creative to help you find solutions to your current concerns.

• Determine your budget and know your limit: What are you willing to spend on your space? Establish a range for your
broker to work with.

• Know your must-haves and deal-breakers (i.e. Is ADA compliance important? Do you need 5 parking spaces? Do you need a secure server room?)

2. Identify a location:

• Do you want to stay close to your current location?

• Where are your employees commuting from?

• Do you want to be Downtown or in the Suburbs? How important is private parking? (i.e. Downtown Portsmouth office space rarely comes with parking, where offices in Pease typically have ample parking included with a standard lease)

3. Understand how Commercial Leasing is advertised:

• Commercial lease rates fall into one of three categories: “NNN, Modified Gross & Gross”. What is the difference between these rents?

– Triple Net (NNN): The quoted price per square foot is your base rent only. You will also pay the landlord your share of the building’s common area maintenance, insurance and taxes. Additionally, you are separately responsible for the utilities and pay those yourself.

– Modified Gross (MG): The quoted price per square foot rate include your common area share of building expenses, so the only additional cost to you is your utilities.

– Gross – (Gross): Everything is included (except voice and data) in the quoted per square foot rate.

In summary, a lease rate of $9/SF NNN might be equivalent to $13/SF MG or $15/SF Gross when you take all the costs into account.

4. Establish realistic expectations regarding negotiations:

• Lots of issues can come up when you’ve found space you like. It might be the right price but you need to make some design changes, or the price might be too high but it’s the perfect set-up for your business.

• A longer lease term generally offers more wiggle room: A landlord typically prefers longer term leases (three years or more). The longer you commit to, the longer they can count on a steady stream of income from your rent. This makes them more likely to start at a lower asking rate or contribute to build-out costs.

• Consider the cost of space alterations from the landlord’s perspective, these alterations are investments that need to be recouped over the term of the lease. Do the numbers: if you’re asking the landlord to install a new bathroom for $8,000, and your rent is $12,000 a year, it’s likely not a smart investment for the landlord to make. Be reasonable in your expectations of a landlord.

5. Expect the landlord to require a personal guarantee or financial background check:

• If this is your first time in the commercial market, the landlord will want to do his or her homework before signing you as a tenant.

• There is a difference between a recognizable company in town looking for another office, and a start up without a rental
history. So expect the landlord to do research and explore your background. It helps protect their investment.

Aside from understanding the nuances of Commercial Real Estate, it’s always most important to be candid about your needs and ask questions. Commercial Brokers want to help you find solutions that work for your business long term, and the more they know about you and your expectations and frustrations along the way, the more smoothly the process will go.

© 2020 Boulos Holdings, LLC d/b/a The Boulos Company. The opinions contained in this article represent the opinions of the author and not the opinions of The Boulos Company. The information contained in this article was obtained by the author from sources believed reliable but have not been verified, so are for informational purposes only. Neither the author nor The Boulos Company makes any guarantee, warranty or representation about anything contained in this article.