Picking the right commercial space for your business can make an impactful difference. The costs for a commercial space that’s not the right fit can quickly drain your resources. Today we’ll examine the different types of commercial spaces you can choose from and look at the pros and cons in order to pick one that suits your line of work the best.
What To Consider Before Deciding on a Commercial Space
It’s important to research and understand what location and type of commercial lease will best suit your business before you commit to a certain commercial space. We’ll go over these important aspects to consider.
The following factors will influence your choice of commercial space location.
Rent and Utilities
Rent will vary based on location. Rent makes up the majority of ongoing costs for commercial spaces. The costs of utilities are also important to factor since they are not always included in the lease. If your company is still in the early startup phase, cutting back on rent and utility costs may significantly improve your operating budget.
Building Regulations and Restrictions
In many cases, buildings and property that are designated as commercial in nature are subject to different tax and financial rules, as well as additional or different legal requirements and prohibitions.
Local laws and building regulations may require you to run your business under certain operating requirements. Therefore, it is important to research and learn about the area and building restrictions.
Knowing your target customers is critical in determining location. You should consider the needs of your customers, accessibility, employees, business image, and surrounding competitors.
Choose your neighborhood wisely and take into account the competition in the vicinity. Will your competitors drive potential clients away or make them decide in your favor?
Additionally, the look and feel of your office facilities play an important role in leaving a good first impression. You can learn more about different commercial street addresses.
2. Type of Lease
Which type of lease is right for your business depends on many factors, including your business plans, goals for the property, cash flow projections, and other elements of your company’s finances and operations. Here are the two most common types of leases.
A standard lease is the most common type of lease arrangement. This is a tenant-landlord lease where the tenant is named on a lease with the landlord. It is a fixed agreement and binds both parties equally.
A sublease is when an individual or business has an existing lease contract with a landlord and wishes to rent a portion of that existing space to a third party.
Before a sublease can be contracted, the landlord must allow the tenants to transfer a part of their tenancy to another party. In this type of lease, landlords approve or deny subletting arrangements made by the tenant, and include these arrangements in the original lease document.
The tenant has full legal responsibility toward the landlord, while subtenants are liable to the original tenants. For example, if a sub-tenant damages the property, they need to make it up to the original tenant, who then pays the landlord for it.
Below we will expand on the types of lease structures exist with commercial spaces.
Common Types of Commercial Lease Structures
- Gross lease - a gross lease is where the landlord pays for all of the usual costs of owning the property, so the tenant directly pays only for rent.
- Percentage lease - this is a type of lease where the tenant agrees to pay a share of the revenue earned while doing business on the landlord’s premises, in addition to the base rent.
- Single net lease - if tenants sign a single net lease contract, they need only pay the rent and property taxes, while the landlord agrees to cover all of the operating costs that pertain to running the property.
- Double net lease - this type of lease agreement implies that the tenant pays the rent, property taxes, and premiums/insurance payments, while the landlord’s responsibility is to cover the structural maintenance expenses.
- Triple net lease - the triple net lease requires the tenant to cover rent, taxes, insurance, and maintenance.
Types of Commercial Spaces
Commercial property can be land, property, or facilities that are either zoned for or used exclusively for business purposes.
Types of commercial property include:
- Business parks - a group of buildings designed for general and light-industrial use for business purposes.
- Industrial parks - consists of buildings divided into units or spaces that are often warehouses or other large unfinished spaces.
- Commercial retail - includes malls, strip malls, and other facilities suited for storefront and walk-in types of businesses.
- Commercial office buildings - high-rise buildings for commercial use, often in urban centers.
Depending on the kind of business activities you’re planning, some of these will be a better fit for you than others. Let's review the pros and cons of the individual types of commercial spaces.
Business parks are often located in suburban areas, where land is much cheaper than urban areas and are easily accessible via main roads and highways.
The premises of business parks are used for carefully positioned office buildings, with no residential properties or factories nearby. Their attractiveness stems from being a purpose-built space, with plenty of parking spots, accessible, accompanied by pristine landscape and high security standards.
Who Will Benefit Most From Business Parks
Service professionals such as doctors, dentists, accountants, lawyers, and insurance agents will benefit the most from business parks. Business parks are, in most cases, almost fully furnished, and moving in only requires a few finishing touches and installations to fit your specific needs.
Industrial parks tend to be located in specially designated zones created by local ordinances and regulations. They are generally located outside of heavily urbanized areas and are near interstate highways.
Because of the additional noise and traffic industrial buildings tend to produce, these zoned areas are usually isolated by buffer areas from residential neighborhoods. Industrial parks may contain oil refineries, ports, warehouses, distribution centers, and factories.
Although industrial parks are generally designated for industrial development and manufacturing purposes they have become increasingly popular for office spaces as well. These semi-upscale spaces still often cost far less to lease than other types of commercial properties and are appealing for their flexibility in addition to their affordability. One can usually build offices inside a warehouse or just use a warehouse as an office (the high ceiling makes for a nice, airy ambiance).
Be aware that the costs of unfinished infrastructure may increase the initial investment if there’s no plumbing, heating, and electrical wiring enabled at the premises. There may be contractor and service limitations, so check if the industrial park requires you to use specific vendors or contractors for signs, lighting, renovations, build-outs, or any other services you install, such as alarms, telephones, cable, etc. Be sure to consider that these types of spaces are generally not located in highly desirable areas. They have good transportation access, but are often situated outside the residential areas of the city.
Who Will Benefit Most From Industrial Parks
Industrial parks are the best natural fit for manufacturing, construction, heavy industrial companies, product and research companies, businesses that need warehouse space, and small retail businesses.
Commercial Retail Space
Retail properties and buildings house all kinds of retail sales shops and restaurants. This segment of the commercial property market can be quite complex, with numerous local zoning regulations and state laws applying to various types of retail buildings and with market-rate rents depending heavily on the type of building, the size, the layout and the number and type of tenants. For example, retail properties may be single-occupancy buildings or large multi-tenant properties, such as malls anchored by a few large stores with multiple smaller shops, booths, and kiosks in between.
Retail spaces entail high capital and operating costs but offer longer-term leases than business or industrial parks.
Who Will Benefit Most From a Commercial Retail Space
Retail and grocery stores, supermarkets, shopping centers, and restaurant chains will benefit from such spaces. In general, the more your business relies on foot traffic, the better a retail space will suit your needs.
Commercial Office Building
Renting facilities in a commercial office building provides a business with a real physical space, which allows them to create space for employees as well as service walk-in customers and clients. These spaces involve high capital and operating costs, with the possibility of longer-term leases.
Who Will Benefit Most From a Commercial Office Building
A commercial office building is a great fit for any business that needs a physical location to accommodate its daily employees, walk-in customers, and clients.
Business and industrial parks are flexible options for startups, while retail and commercial offices are recommended for more established and larger businesses that need to accommodate walk-in traffic, employees, and clients.
As far as costs go, retail spaces are usually the most expensive, followed by high-end offices in high-rise buildings and business parks. Industrial parks and warehouse spaces are usually among the least expensive options.
Overall, it is important to decide on the ideal location, type of lease, and your industry in order to determine the type of commercial space best fit for your business.
Not a Fit? Need Other Commercial Address Options?
We are excited to introduce our new TruLease service. With this new service, you will obtain a legal lease agreement for a true physical space for a fraction of the price of a commercial space.
It is a real lease contract and will satisfy one of the primary requirements when opening a U.S. bank account. Additionally, it will continue to keep your bank account in compliance year after year and eliminate the risk of having your account suspended.
Take a look and learn more about how our TruLease Plan works. We’re open to feedback about the plan, so let us know your thoughts.