Leasing Space for Retail: The Ultimate Guide for 2024

Leasing space for retail can also help grow your business in 2024. Opening a physical retail location can be a daunting experience.

There’s a lot of work to do, from finding the right location, to ensuring you have enough space for inventory, and even managing store layout.

Although demand for online selling is growing, consumers still appreciate immersive, in-store experiences.

They can offer a convenient way for users to evaluate a product’s quality in real-time (before making a purchase), and offer access to valuable customer service support.

Plus, if you offer a great experience, your customers might even spend up to 31% more in-store than they would online.

As an added bonus, leasing a retail space in 2024 doesn’t have to mean opening a store full-time. Even a temporary store or pop-up shop could boost your sales.

So, how do you get started? Today I’m sharing the step-by-step guidance you need to lease your own retail location.

Leasing Space for Retail: The Step-by-Step Guide

Before I dive into the steps involved in leasing your retail space, there are a few things you’ll need to consider.

First, it’s important to determine whether leasing is the right option for you. Leasing can be ideal if you’re only planning on having your physical store for a shorter period of time.

It also lowers your risk, and requires less capital. However, if you’re looking for a long-term space, buying and owning a building might be the better option.

Secondly, you’ll need to determine how you’re going to lease your space. You can handle everything yourself, or you could choose to work with a commercial real estate broker.

These brokers will help you to identify spaces based on your specific needs, and give you the guidance required to navigate the complexities of your leasing contract.

Once you’ve figured out if you’re leasing your retail space (and how), here’s what you’ll need to do.

Step 1: Prepare your Business Plan and Budget

If you’re planning on transforming an ecommerce store into a temporary or permanent retail location, you probably already have a business plan.

However, if you’re starting from scratch, you’ll need to outline the basis. A business plan should identify factors like:

• What you’re going to sell, and how.
• Who your target audience is.
• What your pricing strategy looks like.
• Your marketing and growth plans
• Your financial projections

All of these factors will be helpful when you’re contacting landlords, or asking for funding to help you purchase a retail space. Once you have your business plan, you’ll need to look at your budget.

There’s no one-size-fits-all strategy to determining how much you should spend on a retail space, but experts do recommend dedicating no more than 5-10% of their monthly gross sales to a lease payment.

Calculating the Costs

The first cost you’re likely to evaluate when leasing space for retail, is the monthly leasing cost. This can vary depending on a range of factors, such as:

• Location: Such as if a space gets a lot of foot traffic.
• Demand: If there’s competition for the space you want.
• Condition: Whether the space needs extra work.
• Equipment: The existing equipment within the space.
• Term length: How long you’ll be leasing for.

One point worth noting is that it’s not just the monthly lease rate you’ll need to pay when you launch your store.

There are also other expenses to think about, such as property taxes, common area maintenance fees, and utility costs.

You may even need to pay for construction support, supplies, and equipment (like shelving), and insurance for your property.

There’s also the chance you’ll need to pay a real estate agent fee, if you’re working with someone to help you lease your space.

Usually, commercial real estate agents will charge anywhere between 7-10% of the total lease costs for their service.

Step 2: Determine Space and Location Needs

Now it’s time to figure out how much space you need to lease. While it’s important not to pay for more square footage than necessary, you do want to be able to accommodate growth.

Coming up with a basic idea of your space requirements will help you narrow your search.

Alongside ensuring you have the right amount of space, it’s worth developing a location strategy. After all, the location of your retail space will make a huge difference to your chances of attracting foot traffic, and customers.

Ask yourself:

• Where are your customers located? Based on the research you’ve done into your target market, or the information you have about your existing customers, where is your audience located? Is there a specific state or town where your brand is popular?
• What sort of environment do you need? What kind of environment will suit your business goals? Do you want to launch your store alongside other shops in a traditional mall environment, or open a store on the high street?
• Who are your ideal co-tenants? What kind of additional businesses in the location will complement your business? For instance, if you’re opening a supplements store, it makes sense to look for retail space next to a gym.
• What amenities do you need? What should your space already have so you can get everything up and running? Do you need a bathroom, a designated parking space, or a kitchen?

Step 3: Source Locations

Now you’ve got a basic idea of what you’re looking for, you can begin to search for relevant spaces. There is a few popular ways to do this. The first option is to work directly with a listing agent.

A commercial real estate agent will make leasing your space a lot simpler, helping you find spaces, navigate legalities, and deal with other hurdles.

The only downside is you’ll need to pay a fee for their services. You can find commercial agents by speaking to commercial tenants in the region where you want to lease a space, or by conducting searches on Google.

Ideally, the right agent should have a strong presence in your chosen location, excellent reviews and referrals, and a track record of success.

It also helps to look for an agent with experience leasing the type of property you’re looking for (such as a temporary retail space).

Another option is to simply check out online resources like LoopNet. These can help you sort through potential listings based on a space’s size, location, and amenities. You can even consider listing requirements on a site like Craigslist.

Try to make a list of at least four of five potential locations you can vet, so you’re not limited to choosing the first property you find.

Step 4: Examine Your Locations

Once you’ve found a few good options for your retail space, it’s time to narrow them down, based on a thorough examination.

Reach out to the landlord and schedule a tour of the space. You might want to bring any other stakeholders in your business along to the meeting too, such as contractors.

Take some time to “vet” the quality of the space, by:

• Watching for foot traffic: Sit outside of the space for a while and pay attention to how many people generally walk past on an hourly basis. Can you see yourself attracting a lot of potential customers in this location?
• Checking the safety of the area: Use online resources like “MyLocalCrime” and input your ZIP code to make sure the space is safe and reputable. If customers are nervous about visiting your store, you won’t get as many sales.
• Exploring surrounding businesses: Check that the companies surrounding your retail space will complement your store, rather than drawing traffic away from it. If there are a lot of competitors nearby, you might have to work harder to get sales.

There are even professional services available in some locations that you can hire to perform a location analysis for you (but you might have to pay for the privilege).

They could give you an insight into how well a space is likely to perform based on design and location.

Step 5: Get a Letter of Intent, and Evaluate your Lease

Once you’ve decided on a space that makes sense for your company, you can contact the landlord for a “letter of intent”.

This will outline the terms of the lease (such as the rent cost and the length of terms). You’ll need to evaluate this carefully to ensure everything is in order.

Start by checking the “type” of retail lease you can apply for.

Options can include:

• Full service gross leases: Which include monthly property taxes and maintenance fees. These leases are more expensive because a range of other expenses are included.
• Percentage leases: Where you pay a base rent to your landlord, plus an extra fee based on the sales you make in a space.
• Short-term leases: Short leases used for temporary retail spaces and pop-up shops.
• Net leases: Net leases come in three common forms. Single net leases require you to pay rent, utilities, and property tax costs, while the landlord manages insurance and maintenance fees. Double net leases only require landlords to shoulder maintenance costs. Triple net leases require landlords to only pay for structural repairs.
• Modified Net leases: In a modified net lease, the landlord and tenant agree on a split of the maintenance and utility expenses, while the tenant pays insurance and taxes.

Step 6: Negotiating and Signing Your Lease

The last stage of the process is negotiating your terms, and actually signing the lease.

Some things in your lease are likely to be non-negotiable, buy you can go to your leasing agent and ask them for help negotiating things like:

• Base rent: You may be able to reduce the cost of your base rent by promising to lease a space for a longer period of time, or if you’re able to compromise on other factors.
• Rent hikes: If you think the average price the rent will increase over the next couple of years is too high, you can ask to negotiate on rent escalations.
• Package utilities: Utility payments will take a portion out of your profits, so it’s worth asking whether your landlord is willing to include at least some utilities in your rent costs.
• Lease length: Typical lease agreements usually last five to ten years, but there are companies that can offer shorter leases, such as for “pop-up shops”.
• Emergency clauses: If there’s a clause that stops you from getting out of a lease in an emergency, find out whether it’s possible to arrange for another “escape route”.
• Down payment and security deposit: Many commercial landlords will ask you to pay a few months rent up front. You might be able to reduce the cost of your down payment with a little haggling, particularly if you’re ready to move in fast.

Once you’ve negotiated everything, make sure you set up your business insurance (following the requirements outlined by your landlord and your government).

Finally, you can sign the lease contract, and send it back to the seller. They’ll review the contact and sign it themselves, and you should be able to start planning to move into your new space.

Navigating the Process of Leasing Space for Retail

The process of leasing space for retail can seem complex and overwhelming, particularly for beginners. However, if you can navigate all the steps above, leasing your own space can be extremely beneficial.

It can give you a new avenue for revenue, increasing your sales potential, and your share of the market. Even a pop-up store could give your profits a serious boost.

The key to success is proper preparation. Take the time to explore your options carefully, set a realistic budget, and choose a space that pays dividends.

Frequently Asked Questions (FAQs)