In the competitive world of retail, success hinges on two key factors: location and visibility. With established brands and local favorites vying for customer attention, it’s crucial to choose the right retail space for your growing business. When you’re looking to expand your small or growing retail business into a new space, you want to ensure you find the best options and properly weigh important factors before making your final choice.
Leasing Retail Real Estate is A Strategic Choice for Growth
For many growing retailers, leasing presents a strategic advantage. Here’s why:
- Faster Entry into Prime Locations: Leasing allows you to quickly establish a presence in high-traffic areas frequented by your target audience. This can accelerate your growth compared to purchasing a new location. The same is true for businesses needing new office buildings — looking for a favorable lease will give you faster results and return on investment than buying.
- Flexibility for Expansion: Lease agreements often provide flexibility for future expansion within the shopping center or complex, allowing you to adapt as your business grows.
- Reduced Upfront Costs: Leasing requires significantly less initial capital compared to buying, preserving your valuable cash reserves for inventory, marketing, and other business needs. This helps you expedite any growth plans you may have for your business.
- Focus on Your Business: As a tenant, you’re typically not responsible for property maintenance and repairs. This frees you and your team to focus on core business activities and customer satisfaction.
By strategically leveraging lease options in Cincinnati’s dynamic retail market, you can position your business for long-term success.
What are the steps to choosing the right retail space to rent and signing a lease that sets your business up for success? Here, we break the commercial leasing process down into 5 crucial steps:
Create a Comprehensive Budget
The first thing to do in any kind of real estate search is to create a budget. And in leasing a retail space, budget isn’t just rent and utilities; there are several other costs involved that can cripple your company expansion if you’re blindsided by them:
- Any renovations the space needs before you move in
- Extra costs associated with hooking up any specialized equipment
- Expenses related to the moving process itself
- Insurance
- Security deposit
- The possibility of high demand driving up the cost of rent
Depending on the type of business, you should look to spend about 5-10% of your annual profits on lease payments for the retail space. You can easily estimate if a lease payment for a potential space is healthy for your business by dividing the rent payment by your annual gross profit.
Calculate How Much Space You Need
Securing the right amount of retail space is crucial for your growing business. While leaving room for future expansion is important, overpaying for unused square footage can hinder profitability.
To identify the most efficient retail space for your needs, consider the metric “sales per square foot.” This metric helps you understand how much revenue you generate per square foot of your store, including non-selling areas like storage and offices. To calculate sales per square foot, divide your total annual sales by the total square footage of your current (or planned) retail space.
You can then analyze your sales per square foot data to determine an optimal efficiency range for your specific business model. This benchmark will guide you in selecting a new retail space that maximizes your return on investment. You can also share this with your real estate agent to find the right retail property for lease. By prioritizing space efficiency, you can streamline your operating costs and position your business for long-term success in Cincinnati’s competitive retail market.
Decide on Your Desired Locations
The more desirable a location, the higher the rent for a quality retail space is going to be. Also, the size of the spaces might be smaller than you need. It follows, then, that deciding on the optimal locations for your new retail location is a two-fold process of (1) specifying your non-negotiable criteria for the space, and (2) finding the top of the bell curve of location quality vs cost.
(1) What do you need in the space?
Get detailed about it. It’ll help your real estate broker narrow down your options. Decide on desired:
- Parking and co-tenants
- Signage visibility
- Square footage
- Store frontage and road frontage
- What bathroom situations are acceptable (i.e. shared, private, employee-only, etc.)
- Whether you’re okay with/can afford altering/renovating a space
(2) At what point does the desired location give diminishing returns?
How much is visibility and foot traffic worth, and at what point does higher foot traffic and complete visibility stop adding value and potential for your business? Do your research on the retail market in your desired locations.
When considering the location of the retail space you plan to lease, also consider the commercial “geography” of the area. Locate your business near complementary businesses that attract similar customer bases while offering different goods than your company does; it increases foot traffic and customer interest.
While securing the right size retail space is important, several other factors significantly impact your success.
- Zoning and Building Codes: Ensure the property’s zoning allows your type of business to operate. Additionally, verify that the space complies with all relevant building codes for safety and functionality.
- Long-Term Growth Potential: Will the space accommodate your business’s projected growth over the lease term? Consider the flexibility for expansion within the building or surrounding area.
- Favorable Neighboring Businesses: Surrounding businesses can significantly impact your foot traffic and overall customer experience. Ideally, your neighbors should complement your business and attract a similar target audience. Research potential nuisance laws in the area that might affect your operations. As well, poor neighbors should drive down the price of your retail space’s lease dramatically. Be wary of deals that seem too good to be true.
- Building Rules and Restrictions: Review the lease agreement carefully, paying close attention to any building rules or restrictions. This may include noise limitations, signage regulations, or limitations on operating hours.
Find the Right Commercial Real Estate Broker
At this stage, leveraging the expertise of a commercial real estate broker specializing in retail space can be invaluable. These professionals can streamline your search and guide you through the crucial next steps:
- Refine Your Options: Based on your needs and research, your broker can help you shortlist the most suitable retail spaces from your initial list.
- Expert Negotiation: Skilled brokers possess the experience and knowledge to negotiate favorable lease terms on your behalf, potentially saving you significant costs over the lease period.
- Lease Agreement Navigation: Brokers can guide you through the intricacies of the lease agreement, ensuring you understand all terms and conditions before signing.
Unlocking Market Opportunities in Cincinnati
The current market presents a particularly opportune time to secure retail space in Cincinnati. Recent reports indicate a nearly 1% decrease in retail rent prices – the first such decline in almost a decade. This dip in rental costs creates a favorable environment for businesses to expand into new locations under advantageous lease terms.
The best commercial real estate brokers in your area will be part of a realty firm that is well-established in the region, with expertise in local commercial markets – both past trends and future projections. How have businesses like yours fared in the past in or near each potential space? The real estate development firm the broker works for should have a diverse portfolio of their own retail spaces for lease that they also provide in-house, comprehensive site management.
A Vertically Integrated Real Estate Team Can Help You Find the Best Options
The right management company should be able to offer advice for your growing business by comparing what they’ve seen through their experience, as well as showing you likely trends in the real estate market in the coming years.
When considering any commercial lease, working with a property sales broker who is local to your region is always the best route to go. You need someone with an understanding of the local economies’ activity and growth to help you optimize the location, appearance, and sustainability of your company’s new retail space.
Do a Walkthrough of Each Potential Retail Space to Lease
All the research and numbers-running in the world won’t give you the tangible information you need about a space before you sign a lease. There is such a thing as not vibing with a space; once you visit it and look around the neighborhood and surrounding shops you might find that the space was only good on paper. As well, this crucial step will allow you to get introduced to co-tenants, observe foot traffic in real-time, and confirm things like the condition of the space, utilities, amenities, etc.
Beyond the practical considerations, there’s another crucial factor in selecting the perfect retail space: emotional resonance. Can you envision your business thriving in this location?
Can You Picture Your Business Thriving Here?
Imagine your ideal customer walking through the door. Does the space evoke a sense of excitement and possibility? Does it align with your brand image and vision for the future? Your business needs space to grow in this constantly evolving retail market.
While checklists and calculations are important, prioritizing a space that ignites your entrepreneurial spirit can be the ultimate deciding factor. If the space fails to inspire you, it might not be the right fit for your growing business.
Make Sure the Lease Terms Work for You and The Landlord Is Up to Snuff
This step is also a great opportunity to ask your potential landlord any questions about the space, neighboring businesses, landlord background, etc. Commercial leases for retail spaces are often longer-term; you want to make sure the space is ideal for you and is something that will sustain your growth for a period of time. You also want to make sure you don’t spend 5 years leasing retail space in a building with a nightmarish or negligent landlord.
Make a pros and cons list of each of your top picks with your broker – but listen to them when they tell you to make a decision quickly. Great retail spaces for lease in prime locations go quickly, and you don’t want to miss out on the perfect pick because you were indecisive.
Make Sure Your Lease Works for You
Negotiating your lease before you sign is another process that can be tricky. You want to make the lease as advantageous for you as possible, but you don’t want to get into a difficult negotiation and have another tenant swoop in. A few tips for negotiating the best lease:
- Longer lease terms often lead to more flexibility in price negotiation.
- Bidding wars are just as real of a risk for commercial retail leases as they are for purchasing desirable property.
- Choosing to undertake more maintenance and renovation responsibilities will lead to more flexibility in negotiating the price.
- Businesses that are growing quickly should be careful to negotiate early termination terms in their leases.
- Longer lease terms can make negotiation on annual rent increases more flexible.
- Packaging utilities into the rent payments on the lease may save you money on overhead long-term.
Consider Your Exit Options
Not everything on a commercial lease for a retail space is so straightforward, though. You have to consider the ifs and whens, and include those in the lease if you want to protect yourself thoroughly:
- What happens when you want to leave the space?
- What happens if you go out of business and need to terminate the lease?
- Does your lease exclude you from personal exposure?
- What’s the policy for holdover rent if you overstay the lease on the retail space?
- Are you protected from your landlord defaulting on the building (non-disturbance clause)?
A quality commercial landlord will provide premium site management services and incentives like build-to-suit services for new tenants. Your real estate brokerage may also offer build-to-suit options for your new lease if the landlord doesn’t offer enough incentive or their price is too high. Your real estate broker will know how to get you the best lease terms for your new retail space, and in as little as a few weeks, you’ve got a turnkey new space for your business and can hit the ground running.
Running the Retail Game
A company expansion is exciting – full of potential and hope for further business growth in the future. But even when you’re leasing a retail space instead of buying, you’re still pouring a lot of time, energy, and capital into the process, and a few missteps could take down years of hard work. The right way to make sure you’ve got eyes on all these details and more, is to partner with the right commercial real estate brokerage. They’ll have the experience and background to understand what your business needs, help you understand what level of growth is possible in this new location, and the portfolio and local relationships to find you the best possible retail space for your business to lease.
