Commercial real estate is a game that rewards companies that have strategic visions and that look beyond the near term market and their near-term conditions. In this industry, the right perspective isn't a luxury. It's a bankable commodity that can save you thousands -- or millions of dollars per year. Here are four tips that give you both sides of important issues in leasing and that can help to clarify your vision.
1. Buy, Don't Lease... Lease, Don't Buy
When you look at a site, it's usually best to come in with an unjaundiced view relative to whether you should lease or should buy. The old commercial real estate question of whether leasing or buying is better remains unanswered for a simple reason: it depends on the situation.
If you have excess cash, plan to be in a location for a long time and can get a low-enough purchase price, buying might be the right option. Conversely, if you aren't willing to commit to a location, can't get a great price or don't have extra capital for a down payment and 100% paid-for improvements, leasing commercial real estate might be best.
2. Lease Long Term in Bad Times... Lease Short Term in Good Times
Unless your business is counter-cyclical, there's a good chance that you're making a crucial mistake when you lease properties. Typically, when the economy is strong, you are willing to commit to locations and sign long-term leases. However, everyone else is doing the same thing. This usually means that the vacancy rate is low, rents are higher than they would otherwise be and landlords are less willing to negotiate concessions.
If you look at a lease rate history for most markets, the graph isn't a straight diagonal line going up. It goes up over time, but in fits and starts with up and down periods. As such, if you have the stomach for it, the best strategy is to sign the shortest possible leases when times are good, then, when a recession hits, take advantage of it to sign long term leases and lock in those low rents.
3. Start Early and Take Your Time... Move Quickly
Commercial real estate deals can take years to put together, especially when you figure for all of the preparation you have to do before you can sign a deal. It isn't uncommon to start planning for a renewal -- especially if there's any chance that you will move -- as much as two years before your lease rolls.
On the other hand, when you find a good space, it's important to move quickly. Even in the slowest markets, the most desirable spaces are usually under heavy demand, so it's important to lock them down before someone else does.
4. A Commercial Real Estate Broker Is Great... Two Aren't
Going it alone is a fool's errand in our industry. Even if you're just negotiating a renewal, you can assume that the owner on the other side of the table is getting advice and information from a skilled broker. A good broker will negotiate on your behalf, provide you with market data, and let you know if there are better options out there. He usually won't charge you anything.
However, because a broker knows that he will only get paid if he helps you do a transaction, the worst thing you can do is to have multiple brokers working for you. When you try to use Bob from Brand X and Sally from Brand Y, neither commits to you. Choose one, be loyal to them, and they will be loyal to you. (Teams at the same firm are fine, though.)