In the last decade I have chosen office or retail space for quite a lot of businesses. Much of this is about Arizona but it should mostly ring true for most of the nation.

Of course, if you have the credit the BEST space is one you can buy.  If you have enough cash and credit to buy a building 3-6 times larger than you need and then rent out the rest you are very lucky and this should be done whenever you can.   I know many businesses that decided to buy and they rent out the rest of the building for more than their entire mortgage.  Remember, the same is true in commercial as in residential, when you rent your cost will always go up but when you own you lock in your mortgage payment at the start, and you are paying it back later and at the same monthly rate for the term of the loan. (Usually)  I also know a few business that, after 10 years or so, hit a bump in the road and were able to take out some of the equity in their building to keep their business going.  Lack of access to credit is a quick way for a growing business to fail, or for an entire economy to falter.

Now if you must rent you still have many options.  You are the one picking the building so you get to pick your neighbors.  Spend a day talking to them before you lease, ask them how the foot traffic is, ask them about the amount and types of customers they have.  See if they sell products that will attract customers that may buy your products.  Back in 2001 I located a computer store next door to a cad software and training company, during the first few years we received many of our customers from them simply because they needed a computer to run their cad things.  In 2006 that company moved away.

You also get to pick your landlord.  I have found time and again that you really want a local landlord, the smaller the landlord the more they need you and also the more willing they will be to break the rules when and if you need it.  Also they are much more likely to be helpful if you get behind because they need you.  If you are dealing with a property management company with distant owners they don’t care if you live or die really, the property management gets paid both ways.

You also get to set the terms of the agreement.  Many landlords like to hide tons of little details in their contracts.  One even tried to tell me what hours I needed to have a store open.  Another told me where we could park.  Before you sign the contract you can negotiate on anything you like, and most of these clauses are easily removed.  But one thing that has saved me tons of money is agreeing to take units as is in exchange for many months of free rent.  Many landlords will pay people to fix up the space but if you are willing to take it as is you will get exactly what you want and you can save thousands of dollars.  In one example we got into a location in 2004 and received 4 months of free rent in exchange for taking the unit as is.  All we needed to do was paint, put in new carpet and run our networking cables, which would we have had to have done no matter what.  We got the carpet 24 months no interest, we had some of our employees paint the unit and our total immediate out of pocket cost was less than 1 month of rent.  We now had 3 months for free, leaving us money to get some nice furniture and such.  Another term we always have looked at is about competition.  We don’t want someone to open up who is going to take away our customers so we make a long list of things we do and put in the contract that no one else who does these things can move in. Another clause that we put in that is helpful is the first right of refusal.  Basically this states that if the units adjacent to yours are empty and someone is looking at renting it that the landlord must call you and tell you that someone new is getting ready to move in, you then have 48 hours to decide if you want it or not.  This is very important if you ever plan to expand without moving.  If you foot traffic mostly comes from an anchor store you should also put in a clause saying that if the anchor store goes out of business you will receive rent at half price, and after three months you have the option to dissolve your lease at any time in case you want to move out.  We used this clause once in 2006, and it saved us a ton of money when the albersons wanted to leave, we got out of the lease 2 years early.

Getting a buyers agent is a great idea, the landlord is going to pay for one no matter what so don’t just call his agent, get one of your own who will work for you and have them talk to the landlord.  They will fight harder and you will end up with a much better deal in the end.

Once you have the unit there are a ton more ways to save money, more on that in another blog.