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Tips for Negotiating a Commercial Real Estate Lease

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commercial lease negotiating tipsRenting commercial real estate is an important part of most businesses as it’s going to be one of your most expensive monthly expenses. Because of that negotiating a favorable lease is going to put your business in a better position to succeed. Commercial real estate lease agreements are prepared by landlords which means the contract favors the landlord. As a tenant it’s important that you read the entire commercial lease contract, understand what everything means and how it impacts your business, and then negotiate to make it more favorable to you. Below are a few tips to get you started however keep in mind there are many more things that can be negotiated in a commercial lease.

  1. Research Comparable Rents in Your Desired Area – It’s important to know what rental rates other comparable buildings are quoting. Do some homework and find out what market rates are. This will ensure you are able to negotiate a fair price. If you have a commercial real estate agent representing you then have them do this for you as it will save you a ton of time and money. You will also want to make sure you try to minimize or cap the amount of yearly rent increases so you don’t have any future surprises.
  2. Negotiate the Lease Term Length – Most landlords prefer to have 3-5 year leases and in some cases they will stick to that especially in a hot market. If you are an established profitable business you should be ok with this as you will be able to negotiate more concessions. Also if your business is location dependent like some commercial retail spaces or medical office space then a longer term lease is preferred. However if you are a small startup business then you may want to only look at buildings that are ok with 1-2 year leases. Just make sure to try to negotiate a renewal option.
  3. Know Your Total Costs – Some leases are gross leases and some are called triple net commercial leases (NNN). It can be confusing however in the end it’s important that you know what the total monthly and yearly costs are. What costs is the landlord responsible for and which costs are you responsible for. It’s important that you get all the details on these costs and negotiate caps on certain costs and make them as favorable as possible. 
  4. Request Clauses to be in Your Favor – For example ask for the right to sublease to another company in the event your business doesn’t work out or you grow faster than planned and need to relocate. If you rent medical office space or lease retail space you might want to ask for a non-compete clause so the landlord is not able to lease commercial space to any company similar to yours. You can also ask for a terminate clause in the event the large anchor tenant leaves the project. 
  5. Check the Default Clauses – Make sure to thoroughly read the section of the lease that pertains to default. You may not have any plans to default however you never know. You want to ensure that you negotiate some time to cure defaults (e.g. you are late on rent payments or you exceed your parking ratio)

While you may have your commercial real estate broker and attorney review the commercial lease it’s important that you read it also. The most important thing you can do is read it, and make sure you understand all the clauses and how they could potentially impact your business. If you understand it then you will have the knowledge to effectively negotiate the commercial lease.

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Commercial Real Estate Leasing Tips

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commercial real estate leasing tipsWhether you are leasing commercial real estate for the first time, considering expanding in your existing building or relocating to another, or opening a 2nd or 3rd commercial space there are a lot of things to consider. As a business owner or company representative you may be experienced in all kinds of business tasks and negotiations, however unless you do this day in and day out renting commercial real estate is a bit different. The smallest oversight or mistake can be costly. Below are a few commercial leasing tips to ensure you avoid costly mistakes, mitigate your risks, and negotiate the best possible deal.

  1. Start the Commercial Space Search Early. Avoid waiting until the last minute. There are good reasons why you want to start your commercial space search early. Space won’t always be available when you need it. It depends on your market, type of space, and size needed, however in general you want to start at least 6-12 months before you need space or before your existing lease expires. Leasing commercial real estate takes longer than you think and is not the same as renting an apartment. You want to have plenty of time to find the perfect space and negotiate the deal. If you get in a hurry you make mistakes and leave money on the negotiating table. 
  2. Have a Plan – What are your goals and objectives for the space? Consider your company needs and goals and create a plan on how you will use the space. Make sure to separate your needs vs your wants and stick to a plan that is inline with your budget. Also determine what your headcount will be day 1 and the best you can determine how many you will have 1,2,3,4,5 years from now.
  3. Do Some Research – Have an idea of the type of space you need (office, warehouse, or retail) and what the average gross rental rates are in your desired area. A good commercial real estate broker can educate you on historical and current average lease rates, occupancy rates, and the time you will need to plan on for securing space. They can help you find space that you would not have known existed. They also have a pretty good idea what other companies are paying for spaces similar to the ones that you are considering. Find out as much as you can about the building owner, landlord, management services, and future neighboring tenants.
  4. Get Your Team Involved – Get everyone excited about the new space. Select a few of the leadership team to provide input on how they currently use and will use the space. They all have different perspectives that will be invaluable. What perks and amenities are the employees interested in? Maybe do a survey. In the end you don’t want too many chefs in the kitchen however you want to make sure you create the ideal working environment for as many as you can.
  5. Get Professional Help – Consider hiring a commercial real estate tenant representation broker. Not only can they help you with the research mentioned above they also can help you sift through thousands of SF to find the perfect space and negotiate the deal. Their fee does not cost you anything as they split a commission that is already being paid to the listing agent. They are legally required to represent your best interests. Also you want to have a good architect and attorney in your corner. From doing test fits to reviewing the lease they can help you maximize the use of space and minimize risks.
  6. Know the All-In Cost – There is more to negotiating commercial real estate leases than just the rental rate. It’s important that you know what your TOTAL monthly and yearly cost to rent commercial space is going to be. What are the estimated operating expenses? Who is responsible for the electric and janitorial service?
  7. Is your Use Permitted? – Just because there is a for lease sign does not mean it’s approved for your use. What is the space currently zoned for and what was the previous use? Will you be required to apply for a change of use with the city? Those are a few questions you need answers to when leasing retail space.
  8. Talk About Improvements to the Space – What improvements (if any) does the space need? For example does the space need new carpet and paint or do you need to have a few walls removed or built? Who is going to pay for the improvements and who will manage the construction? Will you be required to restore the space to its original condition when your lease expires?
  9. Discuss Subleasing – Make sure to negotiate the right to sublease your space. You never know when you need to downsize or expand which could happen sooner than later. Subleasing allows you to lease the space to another company. That way you don’t have to break the lease. It also gives you the flexibility of taking more space than you need now and sublease the extra space. This is important in a tight market where space is not readily available and you want to avoid having to relocate.
  10. Talk About Lease Term – Are you more comfortable with a long or short commercial lease? You can typically negotiate better lease terms and conditions with a longer lease (e.g. 3-5 years or more), however what if your company grows faster than anticipated and you have to relocate before the lease expires? If you plan on growing sooner than later you should consider a shorter lease OR if your favorite building will only do a longer lease then be sure to secure enough space to accommodate your current and future needs. A shorter lease term will allow more flexibility however keep in mind you may have to pay a premium to do a short term, especially in a hot market where there is not very much vacant space. 
  11. Don’t Be Too Ambitious – It’s important that you rent space that will continue to meet your future needs however don’t be too ambitious. Be realistic when assessing your current and future needs. You don’t want to make the mistake of leasing too much commercial real estate that is underutilized or never gets used at all.
  12. Ask Lots of Questions – If you have a commercial real estate broker with you they will be sure you are educated and ask all the right questions. Before looking at commercial properties be sure to have a list of questions prepared so you don’t forget to ask the building owner or landlord representative. 
  13. Get Everything in Writing – Whether a letter of intent (LOI), proposal, or request for proposal (RFP) get it all in writing. Some landlords have the ability to forget things that you ONLY verbally negotiate. Always work from a written proposal. You definitely want to verbally negotiate and discuss however to ensure that you are all on the same page get all the terms in writing. When you counter a landlord you want to be sure to redline your counter on the same document. Don’t make a mistake of only having verbal negotiations as you end up playing a game of he said she said later on.
  14. Commercial Lease Contracts are Negotiable – After you have negotiated the basic terms and conditions on the proposal the next step will be for the landlord to draft the lease contract. Don’t be alarmed when you see a 30 to 40 page document. Everything is negotiable. Just work with your broker and attorney to determine what is in your best interest. Be sure to consider your current and future situations and how things could potentially play out. The commercial lease contract is negotiable.
  15. If You Don’t Ask You Never Get – Always ask for more than what you want or need. If you don’t ask you will never know if it was possible to get. 

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Why You Need to Start Your Warehouse Space Search Early

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search warehouse space earlyOne of the biggest mistakes I see companies make when renting warehouse space is that they start their search too late. They like to wait until the last minute when they need it within 15 to 30 days which is a huge mistake that can cost you money and potential disruption in your business. While this may be ok if you are leasing less than 5,000 sf, however if you need to rent 10,000 or more sf of warehouse space then it’s best that you start the process of finding warehouse space for rent at least 6-12 months before you need the space or before your existing lease expires

Reasons why to start your warehouse space search early

  1. If you live in a hot market like Austin, Tx you may find that there is not much inventory of available space, thus have to wait for something to open up or be built
  2. If you need to rent 20,000 to 30,000 sf or more there may only be new warehouse space in shell condition available, which means it will need to be built out which can take 90 to 120 days or more.
  3. Your new warehouse build out could take longer than expected especially if the landlord and/or contractor cause of bunch of delays
  4. If you put yourself in a bind of needing space ASAP you lose leverage in negotiations with landlords 
  5. Your build out costs could be higher than when you have planned ahead
  6. You won’t have the time necessary to be diligent in negotiations with multiple landlords to create a competitive environment
  7. You will cause yourself and your employees a lot of unnecessary stress

I understand it’s hard to predict how much warehouse space you will need 1, 2, and 3 years down the road however at some point you are going to have to do some planning and lease the industrial space before you need it. One quarter there may be plenty of space to choose from however the next quarter you may find that there is nothing available within your ideal size and layout. If that happens your only option is to consider brand new space which means you will have to wait at least 90 to 120 days to get it built out and have a certificate of occupancy so you can move in.

There are ways to structure industrial space rental leases where you can take more space now and not have to pay for it later. If you would like information on how to do this feel free to give us a call at (512) 861-0525

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How Much Does it Cost to Build Out Brand New Warehouse Space?

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cost to build out new warehouse spaceWhen searching for warehouse space to rent you will find industrial space that has been previously built out and occupied before (aka 2nd generation space) and if available you will also find brand new warehouse space that is in shell condition (aka 1st generation space). When I say the warehouse is in shell condition it means that it has never been built out before or occupied by any tenant and looks like what you see in the photo here. There are no bathrooms, lights, office space, or anything.

Most companies that rent warehouse space typically need some office space built out so they can have a place for their employees to operate the business. You mostly see them needing somewhere between 1,000 to 5,000 sf of office however in some cases tenants will need more office space.

Total costs can depend on the size of the space, your specific special needs, the market you are in, and the level of improvements that you ask for, however in general the average cost per sf to build out basic warehouse space with a little bit of office is pretty much the same.

Cost to Build Out Warehouse Space Depends on Needs and Market

Let’s say you need to rent 47,000 sf of warehouse space in Austin, TX and you need about 3,000 sf of office space built out. The industrial property that you like has just been completed so it’s in cold dark shell condition which means there are no lights, no bathrooms, no power, etc. It looks just like what you see in the photo above.

warehouse rental space planTo build out 3,000 sf of office space similar to what you see in the photo of the floor plan would cost you roughly $7 to $9 per SF. However keep in mind that every ones needs are different. Below is a typical construction bid that you would see on a warehouse space built-out like this.

General Requirements

  • Project Management – $2,091
  • Supervision – $3,137
  • Permits & Fees – $1,045
  • Trash Dumpster – $600
  • Insurance – $1,969
  • General Cleanup – $750
  • Engineering – $7,000

Concrete & Steel

  • Dock Ramp – $8,660

Woodwork & Millwork

  • Cabinets – $4,272

Thermal & Moisture Protect

  • Roof penetrations and acoustical insulation – $3,000

Doors & Windows

  • Interior doors and hardware – $12,368


  • Drywall partitions – $53,413 
  • Tape, float, texture, paint – $6,000
  • Acoustics ceilings – $6,100
  • Sealed Concrete – $5,522
  • Rubber base – $830
  • FRP – $874


  • Restroom accessories – $2,340
  • Mini blinds – $2,314
  • Toilet partitions – $1,950
  • Fire extinguishers – $220
  • Edge of dock levelers – $23,904
  • Bay door entrance ramps – $10,030


  • HVAC work – $30,060

Plumbing & Fire Sprinkler

  • Plumbing work – $42,300
  • Fire sprinkler work – $8,950


  • Electrical and lighting work – $48,000

General contractor fees – $15,684

Contingency – $5,229

Architectural Test fit fees – $950

Architectural fess thru DD / Construction docs – $13,100

Architectural fees , permitting, bidding, & CA – $10,700

Other project consultants – $7,810

Landlord construction management fee – $12,329

Total Cost to Build-Out Warehouse Space from Shell Condition

  • Total costs – $372,615 
  • Cost per SF $7.85 per sf

The warehouse build-out above includes two concrete loading ramps as well as dock levelers so that adds about $40,000. Other than that the construction is pretty basic and typical of most warehouse space finish outs (bathrooms, lighting, etc). Most warehouse space build-outs will fall within $7 to $9 sf unless your business has special power requirements or other needs that could cause the price to go up. Overall it seems to cost less than the cost to finish out office space.

If you have any questions about finish out costs for industrial space or need to rent warehouse space in Austin, Tx feel free to give us a call at 512-861-0525.






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Risks With Subleasing Commercial Real Estate Space

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subleasing commercial real estate space risksWhen you are looking for commercial real estate space for rent such as warehouse, retail, or office space you will typically have the option to rent direct from a landlord or sublease commercial space from an existing company if there are any available that meet your needs. Both have their advantages and disadvantages as well as risks that I will discuss below.

Leasing Commercial Space Direct From the Landlord

Leasing direct from the landlord is pretty straight forward.

  • You find the space you like
  • The landlord verifies that you have good financials
  • Then you negotiate the basic terms, conditions, improvements, and the lease contract.
  • Tenant signs the contract first then the landlord

Subleasing Commercial Real Estate Space From an Existing Company

Leasing commercial sublease space involves many more steps.

  • You find the space you like
  • The Sublessor and Landlord will want to verify your financial status
  • Negotiate basic terms and conditions, and the sublease contract
  • Both the Sublessor and Sublessee sign the sublease contract along with the landlord consent form
  • All the signed contracts are given to the Landlord for final consent and approval (which they typically have 30 days to do so). 

Commercial real estate subleases have a few advantages & disadvantages, and they also have inherent risk.

Advantages of Subleasing Commercial Real Estate Space

  • One advantage of subleasing commercial space are that you can typically negotiate leases rates a little bit below market, or below what a Landlord in the same building would be quoting new tenants. However keep in mind in hot market where there is very little space available it may not be much below market.
  • Another advantage is that you can typically get shorter lease terms. There are some subleases that have 4-5 years left on the lease however in many cases there are typically 1-3 years left on a commercial sublease which gives new companies and startups more flexibility from having to lock in a long lease term.

Disadvantages and Risks With Subleasing Commercial Real Estate Space

  • You have to take the remaining sublease term – in most cases existing companies will want you to sublease the remaining lease term. So if there are 4.5 years left they don’t want someone to only sublease for 1 or 2 years. You will come across a few situations where the Sublessor will be ok with you subleasing for 1 or 2 years, however in most cases you will have to fulfill the remaining lease obligation.
  • You have to take the space “as is” – In most cases you have to take the space “as is”……meaning the sublessor will not be willing to give any tenant improvement money to make changes to the space. You might find one or two that will, however in most cases if you want to make improvements to the space (e.g. new carpet and paint) you will have to pay for it yourself.
  • Recapture clauses – You need to read a copy of the master lease. If it has a recapture clause then that means if a tenant wants to sublease the landlord could take back the space. In most cases the landlord won’t exercise this option. However if a large tenant in the building needs to expand OR the tenant that wants to sublease is paying a below market rate the landlord might exercise the option to keep that large tenant or take back the space because they could rent it out for a much higher rate than the existing tenant is paying. It’s important that you know the sublessors intentions AND discuss with the landlord their intentions so that you don’t spend months negotiating and then at the last minute the landlord decides to recapture the space. HOWEVER, just because they say they have no intention of doing so they could change their mind at the last minute and totally ruin your deal………..and have wasted your time.
  • Your landlord is the Sublessor – Make sure they have solid financials and operations also. You will be paying them rent and they pay the landlord. You don’t want to find out later that you paid them rent for 6 months and that they did not pay the landlord. Even if you paid they could go bankrupt and leave you hanging………and the landlord would evict you.
  • The rent will increase after the sublease expires – Let’s say you sublease an office space in a class A building. You might be able to afford that space now because it is discounted. However after that sublease expires you will now have to pay market rates, unless you decide to relocate to a less expensive building or find another sublease. Moving can be a hassle especially if you are a growing company. Just make sure that whatever commercial space you sublease that you will be able to afford the direct space lease rates so you have the option of not having to move.
  • The sublessor could lease to someone else – Just because you have agreed to terms on a proposal does not guarantee you the space. Until you have a contract signed and consented by the landlord you don’t have a deal. Another company could come along and ask for few concessions that you did or they could have better financials. Don’t get your feelings hurt, it’s business. Just find another space.

In the end it’s impossible to totally insulate yourself from risk, however you can minimize it by gathering as much information as you need to make an informed decision. If you fall in love with a particular commercial real estate sublease space just know that there are risks and no guarantees that you will get the space. The landlord could tell you they have no intentions of taking back a space and then at the last minute the Big tenant in the building decides they need to expand. Commercial real estate subleases can save you money and in some cases allow you to enjoy the flexibility of shorter term leases, however just know there are some risks that are out of your control. It’s business so don’t get your feelings hurt. If you start the process of finding space at lease 6-12 months from the time you need space then you will have plenty of time to find another space in the event your favorite sublease space does not work out.

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Why It’s Important to Start Your Industrial Space Rental Search Early

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industrial space for rentI’ve helped a lot of companies find and rent industrial space in Austin Tx and one of the biggest mistakes I see is that they don’t start their search early enough. No matter how much I stress the importance of starting the process at least 6-12 months before their existing lease expires or before they need that expansion space too many people wait until the last minute to start the process of finding space.

I know every ones situation is different. It can be hard for a growing company to predict how much industrial or warehouse space will be needed 12, 24, or 36 months from now. You might be renting 20,000 sf of warehouse right now however at any moment you could sign on that ONE big client that will increase your space needs to 70,000 sf.

Talk About Your Industrial Space Rental Needs Often

Whether you are an a startup company leasing industrial space for the first time or a seasoned existing company t’s really important that you discuss your industrial space rental needs often. Maybe consider incorporating the discussions into your quarterly company reviews. How is the space working for you now? Are your warehouse space rental rates in Austin too high? Do you plan on hiring new employees? Are any of your customers going to increase the need to rent more warehouse space? Are you expecting to sign a big client soon that will require you to have more warehouse space?

Why is it Important to Always Be Evaluating Your Industrial Space Needs?

Depending on your market there might be a shortage of warehouse space available. Markets change quickly. A year ago I had a client that needed to lease 20,000 sf of warehouse space in Southeast Austin. At that time there were only 2 options in the entire market and they had multiple offers. We had to fight for that space and had to pay a bit of a premium to rent. Had my client thought about engaging me 6 to 12 months prior to needing space I could have given them a market overview and told them that vacancy rates were very low, and recommended that they lease space sooner than later to ensure they have the space necessary for expansion. That would have saved them from having to pay a premium. 6 months later there was about 1,000,000 sf of brand new industrial space on the market, HOWEVER it was all in shell condition. What that means is if you needed expansion space in 30 days your only options would be 2nd generation space because building out brand new space takes about 3-4 months. In Austin, Tx it takes about 30 days just to get a permit to build. Then another 3-4 months to do the construction needed.

If you think you will need more space in 12-18 months and you know it’s a tight market (not much available space) then it’s a good idea to lock something in now. Otherwise you might find yourself in a jam.

Engage a Commercial Real Estate Agent Before You Need to Rent Industrial Space

In addition to reviewing your current state of industrial space each quarter consider engaging a commercial real estate agent that specializes in industrial and warehouse space at least 6-12 months BEFORE you need space. Have them come in and give you a market over view and share other warehouse rental tips. Is there a shortage of warehouse space? Is it a landlords market or a tenants market? How many SF of industrial space is available right now in your desired area? How many spaces are available with your desired square footage? If the market is tightening up then you might want to rent more space sooner than later, otherwise when you actually do need it won’t be available.

Having a knowledgeable Austin commercial realtor on your team will ensure that you are kept updated at all times about market conditions.





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Top Benefits of Hiring a Tenant Representation Broker

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tenant representation broker hiring benefits
Commercial Real Estate Agent Nathan K Smith working

When you are looking for commercial real estate for rent (office, retail, or warehouse space) and are not familiar with the area or market conditions trying to do it on your own can be very time consuming and potentially costly. The listing agents (aka landlord representatives) will provide you a little bit of useful information however at the end of the day they represent the best interests of the landlord or building owner. Their fiduciary duty is to help the landlord get the highest rates and best terms possible. 

If you really want to maximize your time and ensure that you get the best deal possible it’s in your best interest to hire a specialists that has your best interests in mind. Below are a few of the top reasons why you should hire a tenant representation broker.

Top Benefits of Hiring a Tenant Representative

  1. Tenant Rep brokers work for you – It’s their job to work on your behalf to find the best space, negotiate the best deal, and always have your best interests in mind. Landlord reps maybe nice and helpful however keep in mind at the end of the day they are looking out for the landlords best interests.
  2. You will save time – There are literally millions of sf of commercial space to choose from.  A good tenant representative will listen to your needs and only present you the spaces that meet your ideal size, location, budget, etc. This will save you a ton of time that you would have wasted looking for space on your own.
  3. They will know of more properties for rent – Commercial spaces are listed on websites like loopnet, 42 floors, and commercial search, however the data is frequently inaccurate our outdated. Many of those sites are simply lead magnets. Your tenant rep pays to have access to all of those databases however they also know all of the landlord reps in town so they are able to easily reach out to them and confirm that what they have listed is available and when. They will typically even know of properties that will be available 12 months from now.
  4. You will save money – Tenant reps keep up with market trends so they know what good deals look like. They know just as much or more than the landlord reps which means you will be on a level playing field when negotiating lease rates, concessions, and terms. Having them on your side means you will avoid over paying and not get taken advantage of.
  5. Tenant rep brokers know how landlords think – This means the playing field is evened. They will have the same knowledge, tools, and resources as the landlord agents which will ensure that they are well equipped and your interests taken care of.
  6. Tenant brokers will review your lease – They are familiar with the key lease clauses and will explain them to ensure that you understand the impact of the lease clauses and that nothing is overlooked. 
  7. Simplify the commercial lease process – Renting commercial real estate is more complicated than leasing apartments. Finding the right space and negotiating the lease can take months. A good tenant rep will simplify and guide you through the entire process.
  8. They know great resources – Because they are in the market day in and day out they typically know a lot of great resources such as architects, contractors, engineers, data cabling and internet vendors, etc. You won’t have to spend a ton of time interviewing them as your tenant rep can typically help you in the selection process.
  9. You don’t have to pay for tenant reps service – Tenant reps don’t typically charge a fee for their services. They represent your best interests however their fee is paid for by the landlord. When a landlord and landlord agent sign an agreement a commission is agreed to up front. Your tenant rep splits that fee with the listing agent. Not only does their service not cost you anything, they won’t receive any compensation until the deal is complete. Because of this you can count on them to work hard to ensure your needs are taken care of.
  10. Your needs are met – If the tenant rep has helped a lot of companies find commercial space they typically have a good idea of how to match needs. They can provide valuable insight into your current and future space needs, ideal office layouts for your type of business, etc. They can even uncover needs that you didn’t know you had. 

If you have any questions about the benefits of having a tenant rep broker help you find and negotiate commercial space feel free to contact us. Our website is located at Austin Tenant Advisors.

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