What to know when leasing a new or existing space

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When lease commercial space, a tenant can rent in a new development or lease existing space.

Understanding the advantages and disadvantages of leasing new space versus existing space is critical. There is an incredible amount of nuance involved in both options. This article will help you examine both sides of the equation to help you make an informed decision.

infrastructure improvements

Key The benefits that companies can enjoy when they lease space in a new development are some of the possible infrastructure improvements of the owners. These may include electricity and air conditioning.

Many developers are building spaces with higher electrical requirements than those traditionally built in the past. Since upgrading existing electrical infrastructure can often be impossible or extremely expensive, having the amperage you need up front will be a huge advantage in selecting a location.

After electrical requirements, HVAC is another important element. In a new development, the landlord may have installed new HVAC. However, there is also the possibility that the owner will not install it. Whether the development is new or existing, you should ask and get in writing if the owner will handle the HVAC. He will need to know this before he can start negotiating your deal.

Also, you should determine the size of the HVAC and confirm with your general contractor that it will work for your business. Remember to mention to your general contractor any equipment you will be using and ask your general contractor to confirm that the HVAC tonnage will be sufficient for your needs.

If the owner is going to install a new HVAC, find out if he will distribute it or not. If they are not going to distribute the HVAC, be sure to let your general contractor know and ask them to include the cost of distribution in your quote. If there is existing HVAC, find out how old it is and have it inspected early in negotiations. If the HVAC needs to be replaced, you need to find out as soon as possible.

Related: The 10-step process for renting commercial space

Tenant Improvement Assignment

TO tenant improvement grant is money a landlord gives it to a tenant specifically for the tenant to use in building their space. New developments often offer tenants a higher tenant improvement allowance than an existing space. However, it is essential to note that even though the tenant improvement allowance is higher, homeowners will typically not build a bathroom in the new space. Instead, owners commonly feel that the tenant can add the bathroom to their plans.

The owners typically expect tenants to take some of the money they give as tenant improvement allowance for bathroom construction. So it’s a good idea to talk to a general contractor and get an offer on how much it will cost to build your bathroom. You can then provide the landlord with that number and try to negotiate the bathroom credit. Also, remember that it is essential to check with the city to determine the number of bathrooms you will need for your use.

Higher lease costs

One of the main disadvantages of retail lease or commercial space in a new development is that it may be more expensive. New developments often have higher rental costs due to current construction costs. In the Southern California commercial real estate market, where I specialize, I have seen examples of rents doubling for a new development compared to an existing downtown. In addition to higher rental costs, tenants are often required to pay utility connection fees when they lease a new development.

If the space already exists, it is likely connected to utilities and therefore the tenant would avoid those fees. However, it is essential to take into account that each use is different and each municipality charges different connection fees. So do your homework ahead of time, talk to your prospective landlord, and then talk to the municipality where you plan to open your business. It will help if you find out what your fees will be up front. In this way, you will not have surprises.

Related: Top 5 Red Flags Business Owners Should Be Aware of Before Signing a New York Commercial Real Estate Lease

Signaling

The signage is vital to most businesses — will drive customers to your door. Since signage is highly sought after by all tenants, it can be very competitive to get it. Landlords will not traditionally offer it to tenants. Tenants must work hard to obtain signage rights to their space. You can usually easily get the right to put your name over your space. You need to negotiate to get your business name on other locations in the building, such as the back and side. In addition, you must negotiate your rights to be on any monument poles and signs in the mall or shopping complex.

Remember that there are almost always limited spaces on the monuments and pylon signs. All the tenants in the center will probably not get panels. When negotiating your deal, you will need to request space. Remember to get the exact location of the panel location on your lease. It will need to be added as a display.

Even if a landlord says you may have signage rights, you don’t have rights if it’s not in your lease. At any time, the landlord can force you to remove your sign.

Also, it’s good to keep in mind that in an existing facility, the tenant will typically have to pay for the cost and installation of their panel. However, in a new center, in addition to the cost and installation of their panels, owners often try to pass the cost of building the monument sign on to the tenants. If you’ve seen a monument sign in a center with lots of blank panels, the landlord could have tried to get tenants to pay for the spaces, but the cost was probably prohibitive.