Renting a commercial space makes up the largest of many small businesses’ monthly expenses. The location one chooses for their business significantly impacts the overall success of the organization. Factors such as accessibility from major roadways, the amount of foot traffic the location offers and local zoning codes and ordinances all play a role in determining the best commercial location to grow a business successfully.
Finding the right commercial location takes time and care. No small business owner wants to get trapped in a lease for a space that fails to suit their unique needs or proves too expensive. When determining a location, business owners interact with various types of landlords, and do well to proceed with caution to build a mutually beneficial business relationship for landlord and tenant alike.
Different Types of Landlords
Five primary types of commercial landlords exist, and which one best fits a small business’ needs depends primarily upon the nature of their daily business operations.
The first type of commercial landlord, the mom-and-pop variety, generally own only a few properties in their investment portfolio. They take great pride in their properties, screen prospective tenants carefully and consider the personality of the lessee and the mission of their organization, as well as the potential profits.
One benefit includes having only one person or couple to deal with when negotiating rent, leaving more wiggle room for those on tight budgets. Also, the personal level of the relationship business owners can establish with this kind of landlord leads to opportunities to create a friendlier workplace by allowing employees to occasionally bring pets to work or creating an onsite childcare room.
Family investors make up the next group of landlords. Like mom-and-pops, they know their properties well and take great pride in them, with the difference being the size of their portfolio. Family investors amass a multitude of properties often handed down from generation to generation. While they will work with lessees on things such as improvements, since they’re managing the family fortune, they also possess strong business acumen and may require large down payments to protect their portfolio.
Property management companies, while not technically property owners themselves, manage many property portfolios, meaning they can offer a broader range of options to prospective tenants. However, most management companies operate within strict rules, meaning companies leasing through them must have substantial capital and an above-average credit rating.
Those beautiful high-rises replete with all the bells and whistles generally fall under the purview of real estate developers. These properties feature the most luxurious amenities, but at a price point to match. The high rental price tag of these properties more or less reserves them for the high rollers of the business world.
Finally, real estate investment trusts, or REITs, exist to allow investors to diversify their portfolios by including real estate. With this type of landlord, business owners never deal directly with an individual investor. Since the goal of these entities is maximizing cash flow, like real estate investors, they generally charge high rents.
Tips for Negotiating with Different Landlords
Each type of landlord has unique needs, so when a business owner approaches them to negotiate, different tactics lead to getting accepted as a tenant of that perfect commercial location.
When negotiating with mom-and-pop landlords or family investors, the personal touch means as much as financial records. Business owners should bear in mind these landlords often have a sentimental attachment to the property in addition to a business interest, especially in the case of mom-and-pops, so landlord and tenant must agree to build a friendly relationship in addition to a mutually beneficial business arrangement.
When dealing with property management companies, business owners never deal directly with the property owner, so this type of relationship requires impressing the management company with strong business financials to score that perfect retail or office location. The same goes when dealing with real estate developers and REITs, the difference being that when the business owner works with a real estate developer, they may have more initial opportunities to request personalized options in the build.
Consider Using a Tenant Advisor
Tenant advisors know the commercial properties in their area like the backs of their hands. These experts provide an invaluable resource, not only when it comes to finding the right location, but also in negotiations over rent price and expansion options.
Every small business has different needs, and leasing the correct company location can lead to long-term financial success. By knowing who they’re negotiating with, business owners and tenant advisors can locate properties that truly fit the unique needs of their organization.