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5 issues that scare off commercial tenants

Jun 1, 2017

photo-1455539784245-e92a1368b18d.jpegAs a commercial real estate broker, you’ve mastered what is truly a complicated industry.

Your client? Not so much.

For entrepreneurs looking for space to house their business, the commercial real estate industry can be an incredibly daunting one to navigate. From confusing language and endless acronyms (NOI, BOV, NNN, etc) to aggressive landlords, you really can’t blame the average business owner for being a bit apprehensive.

That’s why it’s your job to make the process of finding and securing commercial space as painless and easy as possible. In order to do that, you need to place yourself in your client’s shoes. A major part of that revolves around your communication style. In addition to that, you need to understand what they’re up against. 

Here are the top five things that can scare commercial tenants off.

1. Long-term leases

There’s a reason every newly minted entrepreneur is after 1,500 square feet and a 1.5 year lease—they’re terrified of committing to a 5 to 10 year lease because the reality is, they have no idea where there business will be in 10 years (or if they will even have a business by then).   

Nearly 80% of businesses shut down within their first year. Most simply run out of money. And with commercial rent typically making up the second largest overhead expense after head count, you can bet office space has something to do with that shocking statistic. 

Nevertheless, you understand that your client needs a professional space from which to do business. The answer? Help them find flexible office space solutions to assuage their fears. That might consist of recommending a coworking space until their business is a bit more stable, or encouraging them to take a smaller space that has the flexibility for them to expand later. The main thing to impart to your client is that they’re not alone here. Luckily, more and more flexible solutions have come about in the past decade to make this dilemma slightly less worrisome.

2. Confusing lease language 

The typical commercial lease is confusing to say the least. And for many first-time office lessors who have never needed to negotiate a document much more confusing than their apartment lease, the temptation to rush through the negotiation process just to get it over with can be all too real. As a broker, you know this is a huge mistake. 

A commercial lease can have major ramifications for a businesses for decades to come and needs to be combed through carefully. Be sure to help your client understand all of the language involved and encourage them to enlist the help of a qualified attorney (maybe even recommend one!).

Who you know matters. Are you in with these 4 CRE partners?

3. Landlords

If they’re lucky, your client will only need to go through the leasing process once every few years or maybe even decades—the landlord they’re negotiating against, however, does this for a living. As such, your client is at a considerable disadvantage from a knowledge and experience perspective. If your client has had a bad experience with a landlord in the past, you may find that they are hesitant to begin the negotiation process.

It’s your job to smooth the way for your client to have a positive experience. Encourage them to speak with other tenants in the building to gauge their experience with the landlord. Your client will be tied to the landlord for years to come, so it’s worth it for them to partner with one they like and trust.

4. Buildout and maintenance snafus

Most tenants dream of making over their office space to look exactly how they want. But the reality of many alterations-and-improvements clauses can make things much more difficult than that. As a result, you may find that your client gets caught up in the tricky lease language embedded in these clauses.

Tenants have good reason to be wary here. Maintenance in particular can become complicated later on. Most commercial landlords will make repairs to structural elements, exterior and common spaces. But this gets complicated when tenants need something to be repaired that is outside of their space, but isn’t explicitly the responsibility of the landlord.  If your client has been burned by one of these issues in the past, assure them that you will help them avoid future snafus by arguing for safeguards in their lease.

5. Hidden costs

Commercial tenants are often financially responsible for much more than the monthly rent check. Real estate taxes and building expenses beyond the base year or expense stop can add up. And landlords have been known to leverage loopholes like the casualty clause to force tenants out and increase rents when the market makes doing so profitable. The threat of these seemingly unexpected expenses or legal actions can put tenants off, especially if they only find out about them when they’re midway through their search, or worse, the negotiation process. 

To hedge against your client getting cold feet, do your best to lay out all of the expenses they might face early on. Everything from moving costs to IT set up should be discussed.

Next: What CRE tenants are looking for

Topics: Best Practices

Nell Gable

Written by Nell Gable

Nell Gable is a freelance writer who specializes in creating compelling content for CRE companies and startups.

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