“Is my rent high? Should I move? Do I need to downsize?” These are all valid questions business owners have asked themselves at least once in their careers. Business ownership is stressful, but the terms of a lease should not be.
For many companies, owning a building isn’t desired or feasible. If a business owner’s primary focus is building a successful future, then “property owner” should not be on the list of responsibilities. However, feeling certain a location is the right fit comes down to two essential factors: Size and budget.
Determining how much space a business needs can be calculated with simple math. Each employee needs approximately 250-square-feet of workspace; with this rough, base number to accommodate staff, additional requirements can be added on. These may include a retail display area, formal reception, conference room, warehouse space, storage, break room, coat closet, restrooms, and so on. Assessing a needs and wants list can be helpful to understand what operational success looks like.
Once size is determined, identify how much a company can spend month-to-month. According to loopnet.com, the average lease rate in Fort Wayne is currently around $17 per square foot; however, a quick look online shows a wide range of asking rates. How does an owner know if a lease rate is reasonable? Factors that influence rate differences include location, condition, amenities, property use type, building improvements, term length and lease structure. Comparisons in asking rates should be viewed on a gross rents basis, which considers all of the listed factors into one, all-encompassing monthly or annual expense.
A monthly rent expense is comprised of three factors: Base rent, net expenses and utilities. The sum of these three is referred to as “gross rents.” A lease structure will outline the amount paid for each of these elements. There are two primary lease structures, but application of them is determined by the landlord.
1. Net Lease: A tenant pays a base rent plus “net fees,” which are utilities, property taxes, property insurance and common area maintenance. Retail shopping centers and mixed-use multi-tenant buildings typically use this lease structure.
2. Gross Lease: This is charged in one single monthly rate. This type of lease typically asks a higher rent rate, as all of the building operational expenses and utilities are included in a flat monthly rate. To accommodate for economic fluctuations, rate increases are negotiated to apply monthly or annually.
Knowing how much space is required to operate and how to budget for total gross rents will naturally resolve many real estate questions. If more arise, a trusted commercial real estate advisor or certified property manager should be sought out to assist.
