As you start your business or expand your operation, you might find yourself in need of a much larger space to manufacture or store products and inventory. In this case, you may find yourself in need of industrial or warehouse space. Warehouses, manufacturing buildings, and multi-use spaces are all considered to be industrial properties. These spaces may be used for product or goods production, storage, fulfillment, or distribution.
Here are our tips for how to go about looking for industrial space, including what to look to for, how to determine your space and leasing needs, and the basics of industrial commercial leases.
Determine Your Commercial Industrial Space Needs
The nature of your business ultimately determines the type of property that best fits your business needs. Industrial property generally falls under one of three different subsets:
- Warehouse space
- Manufacturing space
- Flex space or mixed use property (a combination of both warehouse and manufacturing)
Each type of industrial space serves a different purpose. A warehouse is mainly used for storage and distribution of products. A distribution center is a type of warehouse that is used to distribute products, but is not part of the building or assembly process. Utilizing a warehouse may require equipment for packaging and labeling products in preparation for shipping.
In contrast, a manufacturing space is where one creates, builds, or assembles products. Depending on your manufacturing needs, this kind of space may need to have special zoning or special types of construction, such as reinforced floors, high-volume power sources, or a particular ceiling height.
A flex space, or mixed-use property, is a combination of a warehouse space and a manufacturing space, so you can handle your manufacturing and warehouse needs all in one place.
So, you’ll need to determine whether you’re looking for a place to manufacture your product, store your product, package and ship your product, or a combination of the three.
Locating the Right Commercial Industrial Property
Online property databases make it easy to start your commercial or warehouse search from the comfort of your own home or office. Once you’ve narrowed down the type of property that’s the right fit for your business, you can use online databases to compare properties that meet your specific criteria.
As you start your search, you’ll need to decide:
- Your monthly rental budget
- How much space you need
- What location you’re looking for – do you need to be close to customers, partners, suppliers, or particular modes of transportation?
- What features you need – for example, onsite offices, truck loading docks, large power supplies, reinforced flooring, or a particular ceiling height.
Once you’ve searched online to identify your needs and get a sense of the market, use your list of criteria to connect with a local commercial real estate professional. Commissions are typically paid by the landlord or owner in the commercial lease market, so know that this step shouldn’t cost you anything.
Visiting Commercial Industrial Properties
The next step is to make appointments to see the commercial properties in person. A warehouse may look perfect online, but only once you’ve done a thorough walk-through of each property will you be able to assess whether it meets your unique needs. You should also thoroughly describe your needs to the real estate agent, who may be able to make recommendations about the properties or point out potential problems. Your real estate agent will also be aware of any zoning issues. For example, manufacturing processes that use certain chemicals or hazardous materials may be forbidden from operating in certain areas.
To keep yourself organized, experts recommend that you keep tabs of your potential warehouse options. One way to do so is to create a spreadsheet with details of each space you visit. Use the categories to compare key elements of the properties you see, including:
- Square footage
- Unit lease price
- Additional costs and expenses
- Duration of lease terms (months or years?)
- How well each property meets your needs
If you see a space that doesn’t fit one of our criteria, you can ask your real estate agent about remodeling or changing the space. That won’t always be an option, but it’s worth asking if you find a place you like but isn’t quite right.
You should also ask your real estate agent for details about the property, such as:
- Whether it has energy-efficient lighting, which can save you a lot of money
- What types of fire-prevention systems are in place (sprinklers, etc.)
- How much parking is available
- Whether there is sufficient clearance for delivery trucks
- Can the space be modified to fit your needs (e.g. separating a section to act as an office space)
Even if you think you’ve found the perfect space, keep looking! But wait – don’t you want to lock down that perfect place the second you find it? The answer is unequivocally: No.
Here’s why: If you find two or three commercial properties that work, you’re not wed to the idea of the first one you see. This means you’ll have a clearer head as you consider which one is really best for you and your business. Moreover, if you have a few properties to consider, you’ll have the upper hand when it comes to negotiating the lease terms because you won’t be desperate to close the deal. You know that this isn’t your only option, which puts you in a position of power.
The key is to stay detached. Real estate can be tricky because of our natural inclination to favor one space over another. You certainly want a property you’re excited about – but don’t let your enthusiasm color your business-owner glasses.
Experts recommend searching until you find three properties that meet your needs. Only then should you consider making offers and actively comparing lease terms.
Commercial Lease Basics
Commercial leases may be more complex than residential leases because each one may be tailored to a particular business. They also involve significantly more negotiation than a typical residential lease. Commercial leases fall into 2 different categories: gross and net leases.
The tenant pays a higher monthly rent, which covers the taxes, insurance, maintenance, utilities, and other expenses. This is the easiest option since you only have to make one payment and are able focus on your business – the landlord will deal with the building. You’ll need to ask what types of janitorial and maintenance services are provided (and how often) and whether you’ll be responsible for utility consumption over a certain limit.
The tenant pays a base rent every month. In addition, the tenant pays a pro-rata share of the other expenses associated with the building, based on how much of the building they occupy. The most common type of net lease is called a “triple net” lease, where you pay your pro rata share of the property tax, insurance, and maintenance for common areas. You’ll also pay for your own janitorial services, utilities, and any other expenses associated with your use of the space. This can end up being cheaper as you get the benefit of cost-savings in operating expenses, but your monthly rent may fluctuate and be harder to budget. Triple net leases are the most popular type of commercial lease, but they tend to be landlord-friendly so check out the terms carefully.
Common Commercial Lease Terms
If you think you may want to pursue a lease on a particular property, request that the owner provide you with a pro forma (blank) copy of the lease. That way you can put together a list of each aspect of the agreement and figure out what sort of terms would work for you.
When you’re reviewing the pro forma lease, you’ll want to make sure you are clear on all costs and expenses. Look closely for any hidden fee provisions to make sure you know exactly what your projected costs will be to lease the property. This includes property maintenance, utility fees, or other additional expenditures. If something is not clearly spelled out or is confusing, ask questions! You want to be completely clear on the terms before you sign.
Some common terms in commercial leases include:
- Rent per square foot and total monthly rent
- Payment schedule
- Security deposit
- Term of lease (many commercial leases have terms of 3 or more years)
- Rent increases, if any
- Utilities, taxes, insurance, and maintenance (gross or net lease)
- Who pays for any property improvements?
- Who deals with repairs?
- Is subleasing allowed?
- Are there any inventory liens? (this varies by state)
- Tenant improvements (includes painting, building out a section for office space, and other physical changes to the property; they’ll typically be added on to your rent per square foot
- Options to renew
- Provisions for breaking the lease (for both you and the landlord)
- Arbitration clauses
Since commercial lease details may be complex, consider this SBA resource to answer more questions on the topic. Experts recommend reviewing commercial leases with a commercial real estate attorney before signing to ensure all of your rights are protected. A lease for commercial property is a huge investment, so you want ensure you understand the contract before you’re legally bound.
The Bottom Line
Finding and leasing a warehouse space for your business is a big step. Make sure you take your time to research multiple properties, work with real estate pros to consider your options, and then review any lease contracts with attorneys before signing. This ensures that you’ve taken the necessary steps to rent warehouse space that’s right for your business and that your legal rights and business assets are protected.