When It’s Time to Lease Commercial Space
As a business grows, space requirements evolve. Whether transitioning from a home office to a dedicated location or expanding operations to accommodate staff, there comes a point when leasing commercial space becomes a practical necessity.
Leasing offers flexibility, access to desirable locations, and fewer long-term commitments than purchasing property. This guide outlines the essential end-to-end considerations for leasing a commercial space from defining your needs to reviewing lease agreements and negotiating terms with confidence.
Understanding Commercial Leasing Basics
A commercial lease is a formal agreement that allows a business to rent property for commercial use. These properties may include office buildings, retail storefronts, warehouses, or mixed-use developments. Commercial leases differ from residential contracts in both structure and cost allocation, so understanding the key types is critical before signing.
Common Lease Structures
• Full-Service Lease: The landlord covers most expenses, including maintenance, insurance, and utilities.
• Net Lease: The tenant pays base rent plus a portion of the property’s operating costs.
• Percentage Lease: Rent includes a base rate plus a percentage of the tenant’s sales.
• Triple-Net (NNN) Lease: The tenant pays rent as well as property taxes, insurance, and maintenance.
• Gross Lease: The landlord pays the majority of property expenses.
Understanding these commercial lease structures enables better comparisons and more accurate cost forecasting.
Step One: Define Your Space and Business Requirements
Before searching for available commercial properties, clearly outline your operational and financial requirements. Consider the following:
• Type of space: Determine whether you need office, retail, warehouse, or mixed-use space.
• Size and layout: Ensure the space supports current needs and anticipated growth.
• Budget: Most businesses allocate 2%–20% of gross income to rent, depending on industry and location.
• Accessibility: Evaluate parking, public transit, and proximity to customers and employees.
•Infrastructure: Assess utilities, internet capacity, and compliance with accessibility standards.
A precise understanding of these factors allows you to filter properties effectively and approach negotiations from an informed position.
Step Two: Finding the Right Property
With your criteria established, explore available listings. Several strategies can help identify suitable options:
• Use reputable commercial real estate platforms to compare listings by location, size, and lease type.
• Engage a commercial real estate broker familiar with local market trends.
• Review listings from local business associations or chambers of commerce, which often include upcoming vacancies.
• Evaluate for-lease-by-owner opportunities, which may offer more options such as tenant improvements.
No matter the type of space—retail, office, or warehouse—looking at multiple options helps you get the best pricing and stronger leverage in negotiations.
Step 3: Conduct a Thorough Property Evaluation
After identifying potential properties, perform comprehensive due diligence. Important factors to assess include:
• The mix of neighboring tenants and nearby businesses.
• Local demographics and patterns of foot traffic.
• Availability of parking, ease of deliveries, and overall accessibility for staff and customers.
• Compliance with zoning regulations and building codes for your intended use.
• Safety, lighting, and general maintenance standards.
Visit each property at various times throughout the day to observe activity levels, lighting, and environmental conditions. This helps provide an accurate picture of how the space will function in everyday operations.
Step 4: Prepare Your Financial Documentation
Property managers and landlords require financial assurance that a tenant can meet lease obligations. Assemble the necessary documentation before beginning the application process:
• Business and personal credit reports
• Recent tax returns (business and personal)
• Financial statements and balance sheets
• Bank statements and proof of cash flow
• Security deposit and, if applicable, a personal guarantee
Maintaining organized, current documentation demonstrates professionalism and can expedite approval.
Step 5: Review the Lease Agreement in Detail
A commercial lease is a legally binding contract. Review each provision carefully to ensure you understand your rights and obligations. Pay attention to:
• Base rent, payment schedule, and escalation terms
• Lease duration and renewal options
• Maintenance and repair responsibilities
• Use clause and any restrictions on operations
• Insurance and liability requirements
• Termination clauses and associated penalties
REDICO's team of experts can assist with a thorough review of your commercial lease agreement to clarify ambiguous clauses or costs that may impact your business.
Key Leasing Terms to Know
Familiarity with key industry terminology helps clarify your responsibilities and strengthens negotiation outcomes.
• Common Area Maintenance (CAM): Shared costs for upkeep of common areas such as lobbies, hallways, and parking lots.
• Build-Out or Tenant Improvements: Modifications made to tailor the space for your operations.
• Escalation Clause: Allows for scheduled rent increases during the lease term.
• Exclusivity Clause: Prevents the landlord from renting to direct competitors within the same property.
• Option to Renew: Provides the tenant with the right to extend the lease at the end of the term.
A clear understanding of these terms minimizes risk and ensures you enter the agreement fully informed.
Step 6: Leasing vs. Buying a Commercial Property
While property ownership offers long-term stability, leasing often provides more short-term options and lower upfront costs. For many growing businesses, leasing is the more practical choice.
Advantages of Leasing
• Lower capital requirement: No need for a large down payment or financing approval.
• Operational flexibility: Easier to relocate or expand as business needs change.
• Reduced maintenance burden: Fewer repair and replacement responsibilities compared to ownership.
• Access to prime locations: Leasing often allows entry into markets where purchasing would be cost-prohibitive.
Evaluate both options in light of your business’s projected growth and financial outlook before making a decision.
Step 7: Best Practices for a Successful Commercial Property Lease
Effective planning and negotiation are central to a successful leasing experience.
• Negotiate all terms: Rent, lease duration, improvement allowances, renewal options, and signage rights are often negotiable.
• Plan: Begin your property search six to nine months before your intended move-in date.
• Budget accurately: Include rent, CAM fees, utilities, insurance, and taxes in total occupancy costs.
• Document communications: Keep written records of all discussions and agreements.
•Inspect multiple times: Evaluate the property under different conditions to identify potential issues early.
A disciplined, well-documented approach reduces risk and positions your business for a smooth transition
Lease With Confidence - Contact REDICO's Commercial Leasing Experts
Securing the right commercial space is a strategic decision that affects business operations, customer experience, and long-term growth. A well-structured lease supports stability while maintaining flexibility for future expansion.
REDICO’s commercial leasing professionals specialize in helping businesses identify and secure spaces that align with their objectives. Our team provides market insight, detailed lease analysis, and negotiation support to ensure you achieve the best possible outcome.
To discuss your space requirements or explore available commercial properties for rent, call (248) 827-1700 or click here to contact REDICO online.
Partner with an experienced leasing team committed to positioning your business for success.
About REDICO
REDICO is a national real estate development and investment firm headquartered in Southfield, Michigan. With over 50 years of service, REDICO specializes in commercial, mixed-use and multi-family real estate, development, acquisitions, investment management and operations. The company is committed to creating vibrant, sustainable communities that enhance the quality of life for residents and businesses alike.
