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Smaller Tenants Having a Big Impact on Commercial Real Estate

05/04/2015

Without question, industrial real estate has experienced a major recovery in demand over the past few years. As part of this there have been some interesting changes. One in particular is a growing number of tenants looking for square footage that ranges anywhere from 10,000 to over one million of industrial space.

According to First Industrial Realty Trust, larger tenants looking for regional distribution and bulk centers are spearheading the recovery process. However, as available large space becomes more difficult to find coupled with economic activity rising, there is a definite increase for smaller space.

The Unique Nature of Industrial Real Estate

The industrial industry is unique to commercial and residential real estate so to accommodate tenants in smaller spaces properly and make profit, building owners should offer an acceptable philosophy and operational structure. Every tenant’s business and options for recommend space needs to be fully understood by the building owner with the goal in finding smaller space for a tenant that will match both short and long-term goals.

Compared to larger companies, the mindset of smaller tenants is different. Therefore, if building owners take a “one-size fits all” approach not only will they lose out on incredible deals but be at risk for living out long leases with unhappy tenants.

To achieve success in leasing space to smaller tenants, owners need to move quickly and keep things simple. After all, buildings with large square feet will likely sit for a lengthy time before being leased whereas smaller, 5,000 to 10,000 square foot spaces are snatched up fast. For that reason, owners must ensure that spaces are move-in ready.

Special Provisions

In addition to providing offices with new paint and carpeting, the space must be mechanically fit and have a functional layout. Often, smaller tenants lack experience, resources, or time required to complete renovations so it is up to the building owner to have the space complete.

Simplicity with the leasing agreement is also critical. To avoid hiring an attorney who can decipher a lease, the terms need to be clearly defined so the tenant fully understands. A prime example is that if interior construction is part of the leasing term, a smaller tenant may have no idea that permits are required or how long it would take to secure them.

Typically, smaller tenants have no lease negotiation experience so the leasing process should be straightforward and streamlined. Usually, a lease for less than 10,000 square feet is 10 pages in length or less. However, risk of a smaller tenant is going to be different than from a tenant interested in extremely large industrial space.

Keeping things simple but including certain provisions will make it easier for a building owner to lease to a smaller tenant. If an owner makes the lease short, sets rent payment expectations upfront, and has insurance adjusted for less risk of a smaller tenant, leasing space quickly becomes a win-win situation for both the owner and the tenant. Several helpful tips for finding the right space but also lease were provided by The Business Journals.

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