Are you looking for the right space for your business? Whether you’re opening your doors for the very first time or seeking a location to accommodate your projected business growth, it’s essential to find the right commercial real estate for your needs.
At Select Funding, it’s our mission to provide businesses with the working capital they need to pursue their most important business objectives. We’ve created this guide to commercial real estate 101 to help you understand the basics and find the best possible location for your business.
Commercial real estate is any real estate, whether it’s a building, a retail space, or an office suite, that is rented for commercial purposes. Examples may include a suite in an office park, a single office in a building, a small retail store, a restaurant space, or a warehouse. The occupants of commercial real estate use the space for income-generating activities.
The primary distinction of commercial real estate is that it is not used for personal purposes. Residential real estate is used as living space for individuals or families and not for income-generating activities. In most cases, commercial real estate is located in areas that have been zoned for commercial and business use.
Deciding whether to rent or buy requires consideration of many factors. There are pros and cons to each option.
Here are some pros and cons of buying commercial real estate for your business, starting with the pros:
Here are some of the potential downsides of buying commercial real estate:
Many of the benefits of buying commercial real estate are the same as those for buying residential real estate.
Now, here are some pros and cons of renting commercial real estate for your business, starting with the pros:
Here are some potential cons of renting to consider:
Either option may be the right choice for you, but you should consider the pros and cons of each before you make a decision.
Renting is often the best choice for businesses that are just getting started or established businesses that don’t have enough working capital to finance a large down payment.
There are several types of commercial leases that you should know about before you rent business space:
There are some clauses that can impact your decision to rent business space for your company. Here are a few to consider.
It’s common for commercial leases to be longer than residential leases, which usually last for 12 months before they must be renewed. The average commercial lease lasts between three and five years. It may be extremely difficult to break a commercial lease, with a hefty fee if you need to move out before the lease expires.
Most commercial leases have annual rent increases built in. You may be able to negotiate the increases but once you sign the lease, you’re locked in.
Depending on what type of business you have, you may be able to negotiate an exclusivity clause in your lease. An exclusivity clause prevents businesses that provide the same services as you from renting space owned by the property manager and may be particularly useful for medical practices and service providers.
Whatever type of lease you’re offered, we strongly recommend having a commercial real estate lawyer review your contract to make sure that you understand what you’re agreeing to and what your responsibilities are.
Buying commercial real estate requires a large up-front investment and an understanding of the legal responsibilities that come with owning your business space.
There are five main considerations that you’ll need to keep in mind before you buy commercial real estate.
For most business owners, price is the most important thing to consider when buying property. Prices for commercial properties may range from $500,000 to millions of dollars depending on the type of property you’re buying, its square footage, and its location and function.
Location should always be part of the calculation when purchasing commercial property. Businesses that rely on foot traffic must compete for desirable spaces. It’s common for investors to buy properties with an eye toward renting them, so finding a space that’s for sale may be a challenge. You’ll need to view the property’s location with your vendors, business partners, and clients in mind.
Most commercial properties are in locations that are zoned for commercial use, but you should check the local zoning and permitting regulations to make sure that you can use the space for your business.
When you buy a commercial property, you can redesign it as you like. Since buying commercial property is expensive, it makes sense to look at the property’s existing design and layout and if you can, find a property that will require as little redesign as possible to be functional for your business.
Resale is an important factor to consider when looking for commercial properties because there is always the possibility that you will outgrow the space or choose to relocate to a space that’s suited to your changing needs. Any commercial property you buy should have good resale potential.
Here are the steps required to purchase commercial real estate:
As we noted above, we strongly suggest working with an experienced commercial real estate attorney to make sure you understand your contracts.
Buying or renting business space can help you achieve your most important growth goals, but it also represents a significant financial responsibility. The information we’ve included here will help you decide whether to buy or rent space and help you get through the process.
Do you need working capital to buy or rent commercial space for your business? Select Funding can help! Learn more about our business financing and start the application process today.