Commercial Real Estate Leasing FAQs
1. Most commercial real estate owners hire real estate listing agents to lease their property on their behalf. The listing agreement calls for the listing agent (landlord rep) to act on the owner’s behalf as a fiduciary in leasing the owners property. The landlord reps goal is to get the highest lease rates and best possible terms on the landlords behalf.
In most cases, a tenant will retain a tenant rep agent to find a space on the tenant’s behalf. The tenant reps goal is to get the best lease rates and terms on the tenants behalf.
2. The commission is paid by the building owner and is typically paid one-half upon lease execution and one-half upon tenant occupancy. The commission is most often calculated as a percentage of the lease value and usually ranges between four and six percent. For example, if a tenant signs a 5-year lease for 2,000 square feet at $20 per SF per year, a 5% commission equals $10,000 (5 yrs x 2,000 SF x $20 x 5%).
3. What’s the difference between a leasing agent and a tenant rep? The leasing agent represents the interests of the building owner. A tenant representative or “tenant rep” represents the interest of the tenant in a lease transaction.
4. Its my first time leasing commercial space; where do I start?
The first thing you need to do is to determine your needs:
How much space do you need?
How much rent can you afford?
How important is location? Do I need room for expansion?
Does my new space need to be move in ready?
5. Whom does a broker work for? Brokers generally work in two capacities, as listing agents or as tenant reps. If you are working directly with the property listing agent, make no mistake, that broker is working for the property owner, Not You.
6. How much does it cost to use a tenant rep broker? Nothing, our service are free; commissions are paid by the landlord and it doesn’t cost you, the tenant, anything.
7. How do I hire a broker? The best way is to hire them as your exclusive tenant representative. Most brokers have representation agreements for you to sign which will state that they work for you and your best interest.
8. I’ve found a space, how long of a lease should I sign? This can be one of the most difficult decisions you will need to make. There are several factors that come into play here (yes answers are more indicative of a longer lease term, while no answers indicate that short term lease):
Is my business stable such that I don’t expect my future space needs to change?
Does the space that I am leasing require a substantial investment in tenant improvements?
Do I expect rents to increase significantly in the future?
Is the location of my new space very important to the success of my business?
Is relocating my business hard to do?
Is my rent lower if I sign for a longer term?
The first two items are the most important points to consider. If you have a start-up business, then a shorter lease term is most likely better. However, if your start-up business requires significant improvements, then you may be forced into a longer term lease by the simple economics of amortizing the improvements over a long term so that your base rent is affordable.