One of the hardest decisions you’ll make in your industrial real estate transaction is the length of your lease. While there is no simple answer to applies across the board, there is one way to stack the odds that you’ll make the best decision. When it comes to industrial lease length, your agent’s experience can make all the difference.
In some aspects, the best agent is less a consultant or advisor, and more of a colleague. Instead of offering advice that’s shared in a bid to maximize his own lease or sale fees, your agent should be giving you tips that benefit you.
Seven Considerations of Your Industrial Lease Length
We’ve prepared this list to highlight important factors you need to consider when debating the appropriate industrial lease length. Remember too that both your market vacancy conditions and your property’s landlord will also impact your final decision. Again, your agent’s experience should help guide you through this process.
1. Is my business stable, or do I expect my future space needs to fluctuate?
2. Can I keep my lease flexible in case I need to expand or downsize?
3. Does the space that I am leasing need a lot of tenant improvements, and who’s paying for them if so? If I’m on the hook for all or any of them, will that additional payment be included going forward?
4. Do I expect rents to increase dramatically in the future? What accurate historical statistical data does my agent have so that we can make an informed decision based on future rent trending?
5. How critical to success is the location of my new space? Does a specific location give me an immediate or future potential strategic advantage (benefits such as as rail access, freeway proximity, proximity to labor, proximity to overnight hubs, etc.)?
6. Is it expensive or difficult to relocate my business? Will I always have to pay to relocate, or do alternative resources exist to help ease my costs?
7. Would my rent be lower if I signed for a longer term? Be clear that the laws of basic economics don’t always apply, and market segment over or under supply can have a big impact. Market phasing (recession, recovery, etc.) also tends to strongly factor into this question. In some cases, the best rates are for shorter terms. For more on important market trends and phases, read “Northern Nevada’s Current Phase in the Real Estate Cycle.”
If any of these questions seem difficult to answer, lean on your agent. With his expertise, you can manage decisions like industrial lease length to best suit your needs today without sacrificing flexibility in the future.
You can also learn more about the leasing process with our 13-Step Lease Process Guide. Get your free copy today.