Considerations before leasing a commercial Building for business

Building a successful business starts with a solid foundation, but what if the commercial property you lease turns out to be a financial drain or limits your operational efficiency? Selecting the right commercial property to lease is crucial and can significantly influence everything from your daily operations to your bottom line.

This article will address the common concerns and questions business owners have when leasing a commercial property, guiding you towards a decision that not only supports your business goals but also mitigates potential risks.

Evaluate the commercial buildings' suitability for your business

When evaluating the suitability of a building for lease, consider its condition, location, lease terms, and any required renovations or modifications. Assess the commercial building's structural integrity, age, and maintenance history to avoid unforeseen expenses. 

Location is key; ensure the property is strategically placed for your business operations, considering proximity to suppliers, customers, and transportation links. Look over the lease terms, including duration, rent escalation clauses, and termination conditions, to ensure they align with your business plans. Factor in the cost and feasibility of necessary renovations or modifications to tailor the space to your operational needs.

Is leasing right for you and your business? Read our article on owning vs renting here. 

Key considerations when evaluating the commercial Buildings suitability

• Structural integrity: evaluate the building's foundation, roof, and load-bearing walls or columns. Look for signs of damage or deterioration, such as cracks or leaks. It is also important to look for any structural damage. If steel columns or rafters look bent or misshapen it can be a sign of structural issues.
  
  
• Building systems: check the condition and capacity of essential systems like HVAC, electrical, and plumbing. Ensure they meet your operational requirements and comply with local council codes.
  
  
• Location analysis: use geographic information systems (GIS) to analyse the location for logistical advantages, such as access to transportation networks and proximity to key markets or suppliers.

Consider finding a landlord to build for you to lease

Engaging a landlord to build a property according to your specifications offers a blend of customisation and convenience. This approach allows you to design a space that perfectly suits your business requirements without the hassle of managing construction. However, it also involves negotiating terms that are favourable to both parties.

Consider the lease duration, ensuring it aligns with your business plans and provides stability. Additionally, ensure that the landlord's vision aligns with your business needs to avoid any future conflicts. You’ll need to thoroughly vet the landlord’s reliability and financial stability. 

If you’re a developer or landlord, find out what can elevate the tenant appeal of your properties. 

Key considerations when engaging with a landlord

• Build-to-suit lease: this type of lease agreement involves the landlord constructing a commercial building to your specifications, with a lease agreement that typically spans 10+ years.
  
  
• Negotiation terms: be clear about who bears the construction risks, such as cost overruns and delays. Specify penalties for delays and bonuses for early completion.

Review the lease renewals

Understanding lease renewal clauses and negotiation strategies is crucial for long-term planning. It’s a good idea to get legal advice when reviewing this. Look over the renewal terms to understand your rights and obligations. Assessing market conditions before the renewal period can provide leverage in renegotiating favourable terms. Consider factors such as rent increases, lease length, and any changes in property maintenance responsibilities. It's also wise to have a contingency plan for potential relocation if renewal terms are unfavourable. Proactive negotiation and planning can secure a stable and cost-effective lease arrangement.

Key considerations when reviewing lease renewal 

• Market rent reviews: many leases include clauses for market rent reviews at renewal. Understand how these reviews are done and what comparables will be used.
  
  
• Options to renew: secure options to renew the lease at pre-agreed terms to avoid unfavourable market conditions at the end of your lease term.

Align the commercial building with your business needs

Ensure the commercial property follows zoning regulations and is suitable for your business activities. Evaluate its proximity to suppliers and customers to optimise logistics. Access to transportation, including major roads, railways, and ports, is vital for seamless operations. Consider the space layout and whether it can accommodate your equipment, storage, and workflow efficiently. A commercial property that fits your business needs now, and in the future, can enhance productivity and reduce operational costs.

Key considerations to align a commercial property to your needs

• Zoning regulations: confirm that the property is zoned for your type of business. Industrial zoning may vary widely, impacting what activities are permissible.
  
  
• Space layout: conduct a space use study to improve workflow and storage needs. Consider future growth when evaluating your space needs.
  
  
• Transport links: evaluate access to highways, ports, railways, and airports. Consider the impact of traffic patterns and potential congestion on your operations.

Identify common issues and advantages

Common pitfalls can include unexpected costs such as maintenance and repairs, which can put strain on your budget. Understanding maintenance responsibilities, including who handles repairs and the associated costs, is crucial. Tax implications, such as property taxes and potential tax benefits, should also be considered, and you should run the numbers with your accountant. Conversely, leasing offers advantages like lower initial costs compared to buying, flexibility in location, and the potential for business expansion without significant capital investment. Weigh these factors to make an informed decision.

Key considerations to identify issues and advantages

• Unexpected costs: clarify who handles major repairs and maintenance. Lease agreements may vary, with some costs passed on to tenants.
  
  
• Maintenance responsibilities: understand whether you are responsible for routine maintenance, and if so, ensure your budget is set accordingly.
  
  
• Tax implications: consult with a tax advisor to understand how lease payments, property taxes, and possible tax deductions impact on your finances.

For more information on how to maintain a well-functioning commercial property, download our commercial building maintenance guide today.

Is THE commercial building compliant?

Regulatory compliance is a non-negotiable aspect of leasing commercial properties. Ensure the property meets all local council requirements and adheres to building codes. This includes fire safety, accessibility standards, and health regulations. Environmental and sustainability practices are increasingly important, with many businesses seeking properties with eco-friendly features. Verify that the property complies with these standards to avoid legal issues, insurance not covering a loss due to regulations not being met, and potential fines. Engaging with legal and compliance experts can ensure that all regulatory requirements are met, safeguarding your business operations.

Key considerations to ensure the commercial building is compliant

• Building code compliance: ensure the building complies with the New Zealand building code, covering aspects like fire safety, structural stability, and sanitation.
  
  
• Resource consents: check if any resource consents are needed for your intended use and if they are in place.
  
  
• Environmental standards: consider environmental compliance, such as hazardous substances management, waste disposal, and emissions standards.

Anticipating future needs and growth

When selecting a commercial industrial property, it's vital to anticipate future needs and growth opportunities. Consider the scalability of the property; can it accommodate business expansion if needed? Flexibility in lease agreements is also crucial. Look for clauses that allow for lease extensions or modifications based on your business growth.

Additionally, consider the potential for property appreciation, which can enhance the value of your lease over time. Planning for future growth ensures that your property remains an asset to your business rather than a constraint.

Key considerations for growth

• Scalability: evaluate the potential for expanding your operations within the property or adjacent properties. Multi-tenancy buildings might offer options for expansion.
  
  
• Flexibility in lease agreements: look for options like first refusal rights on adjacent spaces, subleasing rights, and the ability to modify the space as needed.
  
  
• Property appreciation: consider the economic outlook of the area and the potential for property value appreciation, which can indirectly benefit your business.

Conclusion

Leasing commercial property involves careful consideration of several factors to ensure it aligns with your business goals. From evaluating the suitability of existing buildings to understanding lease renewals, aligning the property with your business needs, identifying pitfalls and advantages, ensuring regulatory compliance, and predicting future growth, each step requires thorough analysis and planning.

By carefully evaluating these considerations, you can make a well-informed decision that supports your business's success and growth. Remember, the right property can significantly impact your operational efficiency and financial health. So, take the time to assess each factor, and don't hesitate to seek professional advice to navigate the complexities of leasing commercial industrial property.

Contact us today to speak with one of our experts and get personalised guidance tailored to your business needs. For more information on leasing a commercial building, read our article on owning vs renting or for more on how to maintain a commercial property, download our commercial building maintenance checklist.