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Hey everybody. This is Gene Marks. And welcome to this week’s edition of the Small Biz Ahead podcast. Just a little bit of advice from me in particular. And today’s topic I want to talk about is real estate. In fact, if you’re looking for renting or leasing commercial real estate, now is not a bad time to do it. I’ve heard all those stories and I know you’re reading the same thing about everybody working from home and it’s gonna have an impact on office rents and also an impact on retail stores. And to some extent that is true, but I have to report to you that in many areas of the country, the real estate market remains pretty darn hot. And there are some reasons behind that. The larger e-commerce manufacturer, the providers like Amazon and Walmart and Target and others like them, they have been snapping up warehouse space at a pretty high amount, that has kept the real estate market going for commercial space…
Pretty competitive, again in most parts of the country, retail is also the same thing, as retail has been recovering right now. I’m talking to you right now from Philadelphia. Center City, Philadelphia looks great, it’s pretty much wide open right now. Most of the stores have reopened and that has been a real recovery in the real estate market for retail. And even offices, just general corporate offices, there was this thought that like a lot of companies would be reducing their square footage. And again, to some extent, that is true, but a lot of other companies are changing the makeup of their offices, because it seems that, if they are gonna have people come into the office, even if more working from home, rather than there’s open plan environments, where you were like sitting across a table from your workmate, who is eating their tuna sandwich and sneezing all over you.
Now, we’re kind of going back to the days where there are more cubicles and there’s more distance and space between workers. Which means that even though we have less workers coming into work, a lot of the corporations that are leasing office space, are saying, “Well, we can’t reduce the square footage of our office space because we need the space, because we’re separating out more the workers that are coming in.” All this stuff is having an impact on the real estate market. And you would be surprised it’s pretty competitive, more competitive than you think it is. Here in the Philadelphia area, I talk to some real estate agents and they said like, “Man, demand for offices and anywhere from five to 10,000 square feet is according to one, very, very hot.”
One guy told me they have significantly more demand than supply. Customers are paying record pricing, so it’s out there. So, the bottom line is this; what if you’re running a business, you are looking to have an office space, you’re looking to rent either for your retail store, for an office or just commercially. What do you, do? You know? What are some thoughts? Well, I talked to some real estate agents and I wanna share with you some thoughts on renting commercial space. Okay. So, for starters, if you’re gonna rent commercial property, again, regardless for the use, you have to be aware that your landlord is gonna be looking for tenants that have a good financial track record. They want to make sure that if they’re going to be committing to a five year lease, that you’re gonna be around for five years.
So, don’t be surprised if before they consider you, they start asking you for some information. It is very common for landlords to be asking for tax returns, financial statements, bank records and doing credit checks as well. All those things are commonplace. So don’t be fronted, don’t think like, “Oh, I don’t wanna share this information.” I mean the bottom line is that leasing agents like businesses that are motivated because they need the location and the space to accommodate a new contract, a recent acquisition or their business growth. They just don’t want to take any undue risks. So just be aware, you are a good candidate to rent space. If one, you’ve got good financials and you’re willing to share as much financial information as possible with your leasing agent and number two, you’re a motivated person.
In other words, you need this space. They like to hear that you just got that new contract, you bought a company, your business is growing. Landlords like to hear that stuff. So if you’ve got those two things, you can go in a fairly good negotiating position to work with landlords. By the way, it’s not like commercial agents don’t work with startups if you happen to be a startup. But the reality is that they’re looking for places that have a financial history and ways that they can prove that a business is just more credit worthy. Now if you’re in a retail, you need to be aware of some something else because the world has changed significantly for small retailers that are looking to lease space.
Many landlords now lean towards more experience type businesses, where what’s offered can’t be purchased online. I mean, if you’ve ever watched like The Adventures of Mrs. Maisel on Amazon. It’s like a female comedian in the late fifties, early sixties in New York City. And you see these scenes where she’s walking down the street and there’s dress shops and shoe shops and all that kind of stuff. New York doesn’t look like that anymore. I mean, dresses, shoes, clothing, all that stuff can be bought online and can be bought competitively. If you’re selling those kinds of products, landlords are less inclined to lease space to you because they’re concerned that you’re just gonna be beat out by some e-commerce site.
And that you might not have as long a term or potential, as you might think. Those landlords are looking for experience type businesses. They’re looking to lease out space to retail shops that offer things that can’t be purchased online. So, that’s why we see like so many yogurt shops and cafes and restaurants and workout places in these different shopping places. I mean, a lot of malls, which were really having a hard time in this whole transition to e-commerce, they’re now renting out space to gyms and fitness centers and even to like offices as well or governments or schools because they’re looking for services and experiential places. That’s what they’re really looking for rather than people selling shoes or clothes. Now again, if you’re in retail and regardless of what you’re selling, most landlords will wanna see how you plan to pay your rent over the longer term.
Okay. Again, this gets back to that financial issue. To do that, they’re gonna need to be comfortable with the numbers. So, good realtors are gonna insist that customers do their best to understand what they can afford and take the time to project out their sales and costs. Good realtors, they dig deep into a potential tenants business model. One realtor said to me that like if you’re gonna go deep into like a high traffic area, he often, analyzes the numbers with his potential tenant, looks at what they’re selling and what the products are and what they need to sell and what price to cover rent. And he often says that he makes other recommendations saying like I don’t know if you’re gonna have the volume for this area.
Why don’t you lease space in this other area, which might be less and therefore a lot less of a nut to cover, if you do that. So, you just have to be aware that it is sometimes high foot traffic areas and the high rents connected to them may not be your best option. I talked about financial projections, but landlords, most of them, they want commitments. So they’re gonna require you to make like a minimum five year commitment. And if you’re gonna sign a lease, you can expect that there will be annual increases. I mean, anywhere from three to five percent, particularly in these inflationary times, so you can negotiate things like construction costs and retrofitting and things like that.
But, again, right now it’s a hot market in most markets around the country. And these are things that landlords are gonna negotiate hard for. The other thing is you wanna be transparent with a potential landlord. Okay. That’s what they’re really looking for. I mean, they’re taking the long term risk along with you, they wanna work with you and make sure that you’ve got a revenue stream that’s gonna cover your costs and cover your rent and generate profits. You know? So, I just want you to be aware that it’s a dual effort. It’s not you, it’s not combative and it’s not like your landlord is the enemy. They want you to succeed. They want you to continue leasing for a long time, but you’re gonna have to share information, be transparent and dig into the numbers directly with each other.
One final thing to note before I sign off here, a lot of landlords that I talked to, a lot of the people that are in the commercial real estate business, they were pushing, getting like representatives, independent representatives, a lot of these real estate firms nowadays offer services where you can pay by the hour. A lot of times the landlords will pay the agents by the hour, but you can just have an independent agent represent you. The agent doesn’t lease you any space, but they advise you, they look, they help you determine the best location. They help you research the best rates. They even help you negotiate and finalize a contract with the actual agent that’s brokering the property. I mean, if you have a tenant representative, somebody that’s experienced in the industry, they can work alongside you and help you negotiate the best steal possible.
I mean, listen, you’re not an expert at doing deals right and doing leases. It’s not something that you probably normally do. So why not spend a little bit extra? And by the way, sometimes the landlords will pay for this, but why not spend a little bit extra and have a leasing representative that’s objective that doesn’t have another agenda and they can guide you through the whole process and point you towards the right places. So, those are my thoughts on commercial leasing. It’s a hot market right now in most areas of the country. The warehouse space, the office space, even manufacturing, all of it is still very much in demand, even with all these people working from home. Real estate’s doing okay. You gotta be transparent. If you’re in retail, don’t think if you’re just selling regular products like shoes and clothes that it’s gonna be attractive to a landlord.
It’s probably not. So you gotta be in the experience business. Regardless of what you are looking to rent, you’re gonna share your financial information. You’ve gotta prove to your perspective landlord that you’re gonna be able to pay the rent over the next five years. So, you’ll literally have to show what you expect to sell, what you’ve been selling, what your margins are, how that’s gonna cover the rent and your overhead, and still generate profits from you. These guys are partners for you. Okay? They’re not adversaries. You’ve got to go into the relationship that way. All right. Well, those are my thoughts on commercial leasing. I hope that helped. So you’ve been listening to Gene Marks, this is The Hartford Small Biz Ahead podcast. If you want more tips and advice and help running your business, please visit us at smallbizahead.com or sba.hartford.com. Again, thanks for listening. I will be back next week with some more thoughts on another topic that I hope will impact your business. We will see you then. Take care all.
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