How Much Should You Spend on Rent When Leasing Retail Property?
When leasing retail property, you will need to know how much your business can afford to spend on rent. The maximum rent you should pay varies depending on your industry, but in general, you should spend no more than 10% of your monthly gross sales on the lease. Here are some sample figures for retail stores:
NNN
Most office buildings and newer retail properties are leased on an NNN basis. NNN leases place nearly all of the landlord's expenses on the tenant. These expenses include taxes, insurance, operating expenses, and utilities. However, these expenses are not always covered in a standard “NNN lease.”
Base lease rates
Retail space lease rates can vary from twenty dollars to thirty-five dollars per square foot, depending on the landlord's preference. These base rates are determined by market conditions and accounting preferences. Retail property lease rates are usually flexible, but the final base rate will be based on several factors, including the tenant's credit, lease term, and tenant improvement allowance. Listed below are some examples of retail space lease rates. For more information, contact your local real estate agent.
Commencement date
The Commencement Date of a lease establishes when the tenant becomes obligated to pay rent and open for business. A landlord wants the tenant to open for business as soon as possible to start generating sales, while a tenant wants to be sure that they are open and ready to go before paying rent. While both parties want to maximize their profits, the landlord is most interested in a “fixed” date. This will ensure that the tenant will have enough time to set up shop and plan for buildout.
Extension of lease
Many landlords gloss over extension rent provisions, assuming that “comparable” rents will be enough. They should pay close attention to the fine print and ensure that “fair market rents” are capped at a certain level, rather than letting their tenants negotiate the terms of the extension rent themselves. This can avoid potential disputes and eliminate ambiguities. Listed below are some things to look for in an extension lease for retail property.
Common area maintenance
When leasing retail property, you must consider Common Area Maintenance (CAM) charges. These are expenses that are shared by tenants and are grouped into two categories – controllable and uncontrollable. Controllable expenses are those that a property owner can control and uncontrollable expenses are those that the tenant can't control. The methodology for calculating CAM charges varies depending on the lease, but common practice is to allocate them among tenants based on their pro-rata share of square footage.
Next: View our Industrial Property for Rent
