COMMERCIAL SITE SELECTION TIPS
Site Evaluation: Customer Sources: The shift from the convenience zone to the residential zone offend reduces the importance of apartments and increases the importance of home- or condo-owners. As you move farther away from the retail clusters containing most businesses you encounter apartments first, because they are built around retail clusters, and then owner-occupieds.
Site Evaluation: Customer Sources: In the residential zone the customer fit to your business is more important than customer density. A strong fit provides a good source of frequent and infrequent customers regardless of other factors. When evaluating demographic reports, focus on a good fit with the surrounding residents.
Site Evaluation: Customer Sources: The destination zone describes the area outside the trade area that provides additional customers for your business. This includes true destination-oriented customers willing to drive long distances, retail trade zone customers attracted by the restaurant/retail draw of the area, or commuters traveling to and from work.
Site Evaluation: Customer Sources: In regards to the destination zone transients traveling through the market are considered to be convenience-oriented customers who don't actually come from any of the other zones, but stop near your site based on convenience factors.
Site Evaluation: Customer Sources: If your business is a strong destination because it is unique and scarce, the destination zone will be an important source of infrequent customers. The destination zone may be up to a 30-mile radius. As your business becomes less unique and more convenience-oriented, the destination zone will shrink until it vanishes.
Site Evaluation: Customer Sources: Any destination zone that is a simple extension of the trade area defines a real area regardless of size, and can be evaluated using demographics. Virtual areas are not measurable. Virtual areas are used in describing the origins of customers in transit through the trade area, such as along interstates; these customers are treated as convenience-oriented who stop because they enter the convenience zone and are attracted by signage or other site features.
Site Evaluation: Customer Sources: Destination-oriented customers feed into a retail area through a limited set of major roads, and traffic flow on these roads and the location of good residential pockets along them will determine customer potential from each direction in the market. Depending on customers from the destination zone is always risky because sooner or later several competitors will out-position your location. This may not matter is your business is strong and unique and if the surrounding retail area is a powerful draw.
Site Evaluation: Customer Sources: For customers coming from the destination zone, visibility, access, and strategic position within the retail trade zone are crucial. Many will be finding you for the first time and depend on signage. Even true destination-oriented customers may not be as familiar with the area as nearby customers and will depend on signage and access. Still others who already are aware of your business may drop-in based on signage.
Site Evaluation: Customer Sources: As destination zone customers are coming from all or a large section of the market, maps showing neighborhoods likely to contain your customers are very useful because you can connect key neighborhoods with the street network that feeds your location.
Site Evaluation: Customer Sources: The impact of the destination zone depends on the uniqueness and appeal of your business as a true destination plus good access into the retail trade zone through supportive street & highway networks. Give special attention to the drawing power of the retail trade zone and healthy links with nearby businesses to boost your potential for drop-in customers from the destination zone.
Site Evaluation: Demographic Reports: A traditional demographic report contains information about the people who live in the three rings or geographic zones you select. A daytime population report contains information about the people who work in the three geographic zones. These two will give you most of the demographic information needed for a solid Site Evaluation.
Site Evaluation: Demographic Reports: A traditional demographic report contains information about the people who live in the three rings or geographic zones you select. A daytime population report contains information about the people who work in the three geographic zones. These two will give you most of the demographic information needed for a solid Site Evaluation.
Site Evaluation: Demographic Reports: While a traditional demographic report and a daytime population report will give you most of the demographic information needed for a solid Site Evaluation, it is important to remember that numbers shown are relative. Values of particular statistics are dependent on context. Also, census data, a source for much of the statistics, is often collected based on census zones that change over time.
Site Evaluation: Demographic Reports: The standard three-ring demographic report helps you focus on the details of the immediate area around the site, as well as the surrounding areas. You can specify the points of origin and the mileage ranges for the rings to better focus the data and avoid redundancy. To get the most out of this report you should plan for the three rings to correspond to the three impact zones; convenience, residential, and destination.
Site Evaluation: Demographic Reports: The inner ring of a standard three-ring demographic report represents your convenience zone and has a 2-mile radius for a destination-oriented business and a one-mile ring radius for convenience-oriented business. The inner ring describes the population density in the immediate area and evaluates the site's potential to attract customers coming from shopping or work.
Site Evaluation: Demographic Reports: The middle ring of a standard three-ring demographic report represents your residential zone and ranges from 1-2 miles for a convenience-oriented business and 2-5 miles for a destination-oriented business. This ring describes the number and types of residents who will come from home to visit your business and some of the workers who will be your customers. Usually the middle ring contains the majority of your residents and some workers.
Site Evaluation: Demographic Reports: The outer ring of a standard three-ring demographic report represents your destination zone and has a range of 3-30 miles dependent on the type of business and the population density. The outer ring describes the total population of potential customers and usually contains many infrequent customers. You are a destination for all customers in the outer ring.
Site Evaluation: Customer Sources: The daytime population, people who work or shop in the area of your business, is a primary customer source. This group of customers fills the streets, shops, restaurants and office near your site during the day and then returns home in the evening. The importance of the daytime population can range from nearly 100% for urban locations to less than 20% for a residential area.
Site Evaluation: Customer Sources: Demographic measures of daytime populations may not be as accurate as residential demographics because the former are often based on a limited set of business of financial data for a particular market. Even so, daytime population estimates are an important source of information for Site Evaluation as the daytime population can then be divided into several different customer sources: employees, shoppers, entertainment seekers.
Site Evaluation: Customer Sources: For some businesses, especially restaurants, employees in the area are the largest customer source. Employees will shop coming to & from work, during lunch break, and for take-out or delivery businesses, all day long. Convenience and speed are two critical issues for employees. Unlike residential customers, who may or may not be driven by convenience, employees are almost always driven by proximity.
Site Evaluation: Customer Sources: The effective trade area for employees may be smaller than the residential trade area are. Pay the most attention to the employees in the convenience zone and then give some consideration to employees in the residential zone, especially if a destination-oriented business.
Site Evaluation: Customer Sources: Demographic services can help approximate the amount of employees in each job category for the daytime population. The distinction between blue- and white-collar jobs are important as well as the distinction between retail/service jobs and management/professional. In general, high-rise offices benefit most businesses, while factories provide employees who spend less, and spend less often, even at convenience-oriented businesses.
Site Evaluation: Customer Sources: Your task in Site Evaluation is to match the profiles of your customers coming from work with the employment profile of the area. Usually a large employer will be a negative factor because it will limit the attractiveness of the area as a draw for customers coming from other customer sources.
Site Evaluation: Customer Sources: Shoppers are normally driven by convenience factors, even more than employees, and will travel less than a mile to come to your location. A retail area that acts as a powerful draw is a destination attracting many shoppers while smaller areas will attract more local and convenience-oriented traffic.
Site Evaluation: Customer Sources: There is overlap between residents, employees and shoppers. As the retail area gets smaller the opportunity for transient customers declines and your business becomes more convenience-oriented, making shoppers and residents essentially the same population.
Site Evaluation: Customer Sources: Because large shopping malls are a strong destination their impact on a retail area will be somewhat different from that of many separate businesses or smaller centers. The gravity of a large mall prevents many shoppers from visiting other businesses in the area. Being positioned on a major street feeding the mall is beneficial, while being on the edge of the trade area around the mall with limited access and visibility is not.
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Department of Real Estate
Commercial Real Estate Tips
About Commercial Property Brokers - A full service broker receives as well as initiates transactions. They develop strong problem solving and negotiating skill. Full service brokers often work on more transaction than their tenant rep counterparts.
About Commercial Property Brokers - A qualified commercial property broker will put you in control of your lease transaction. Since you are the one who will live with the lease, control is exactly what you need.
About Commercial Property Brokers - Agency is an action; if a real estate licensee acts as your agent, they become your agent. A broker owes you a fiduciary duty. In other words: an absolutely faithful duty to perform in your best interest, and to do no harm.
See more tipsAbout Commercial Property Brokers - Any broker, even a tenant rep, can inadvertently become a dual agent in a transaction by performing an agency action for the other party.
About Commercial Property Brokers - Brokers are paid upon the completion of the transaction, and not paid if the transaction fails for any reason. Commissions are calculated in two ways: a percentage of the rent for all the years of the lease; or a certain number of dollars per square foot based upon the lease term.
About Commercial Property Brokers - Commercial leasing brokers fall into two categories: full service brokers, who serve as agents for both landlord and tenant; and tenant-only representatives. You will benefit from attaining the skills of a tenant rep.
About Retail Lease Proposals - Operating your business next to a business that may be morally objectionable such as an adult arcade can be a business killer. Have your attorney draft language to protect you from the owner leasing to such uses.
See more tipsAbout Retail Lease Proposals - Take a close look at how your potential neighbors are using utilities in the center and research whether or not you are sharing utility meters with high-demand users. Adjustments may need to be negotiated if separate meters are not possible.
About Retail Lease Proposals - When proposing your lease term, think about the best month for your lease to terminate. If your business thrives during the year-end holiday season and you open your business before the holidays, you may want the lease to end in January or February, rather than an annual anniversary of the commencement date.
About Retail Lease Proposals - Within the operating expense budgets for shopping centers you are likely to pay for promotion and media fees. Be sure these are reasonable and will benefit your business. You may want to have limits placed on how much these can increase annually, or you may find a weak center spending more than you can afford in order to save the center if business falls off.
See more tipsAmericans with Disabilities Act - Do not attempt to tackle the Americans with Disabilities Act compliance without the help of a professional. If employing a space-planning architect, it will be their responsibility to keep you informed about ADA. At minimum you must go to the planning department and ask that the building file be reviewed and that a building inspector visits the site before you sign the lease.
Common Lease Clauses - Most leases contain a provision stating that this is the entire agreement and that you have not relied upon any other representation and that there are no other outside agreements. To make sure this is accurate, review all your proposals and notes on the transaction and check to see everything you have been promised is in the lease.
Common Lease Clauses - Normally you will have access to your premises 24 hours a day, 7 days a week, 365 days a year. And you can expect the electrical plugs and lights and elevators to operate. Many of the other services the owner is obliged to provide will only be available during the building operating hours - these include HVAC, guard services, building engineers, etc. If you need any of these types of services to be extended beyond the buildings operating hours, the cost of these, if even available, will be passed on to you. This is a big issue for some properties, and a footnote for others.
See more tipsCommon Lease Clauses - Regardless of whether or not you are reimbursing the owner for their insurance policies, you will be required to provide your own insurance. Start by sending this part of the lease contract to your insurer along with any clauses that deal with attornment, indemnification and/or subrogation.
Common Lease Clauses - Some forms describe the premises by defining both the rent able and usable square footage, while others just give the suite number and refer to an exhibit: an architectural drawing of the space. Always ask how recently the space was measured and by whom. When an architect is involved it should be easy to obtain accurate area calculations.
Common Lease Clauses - Some of the aspects of assignment and subletting are becoming more and more restrictive. Be sure you know your rights and obligations as well as the rights retained by the owner. The owner will always require that they consent to any assignment or subletting.
See more tipsCommon Lease Clauses - Some smaller properties, owned by individuals, will not want to go through all the calculations and ensuing discussions with tenants about increases in rent. Instead they might simply ask for a flat percentage increase annually. While this is easier for both parties, typically this kind of increase is based upon the entire rental payment. Expense increases are only applied to that portion of the rent that goes toward a particular expense - you could pay more for the convenience of flat percentage increase.
Common Lease Clauses - Sometimes tenants are concerned with outgrowing the space before the lease expires. Usually the solution is to sublet or assign the lease. However, if the sublease and/or assignment provisions are too restrictive, you may want to negotiate an early termination of the lease. There are costs associated with the right to terminate early. Normally you will be expected to pay several months of rent while the owner finds a substitute tenant. If the owner provided you substantial amounts of improvements, you should expect to repay the unamortized portion of that fee. While early termination penalties are expensive, for some tenants this is preferable to being a sub-lessor and the potential liabilities of those duties.
See more tipsCommon Lease Clauses - The "drop-dead-date" is the date by which, if the premises are not delivered, a tenant has the right to cancel the lease and reclaim any money on deposit. How long a tenant may have to wait to cancel a lease is a negotiable item, but 60-100 days is typical. Frequently a delay in possession does not extend the term of the lease, leaving the tenant with a shorter term than anticipated. Be sure any delay in possession automatically extends the expiration of the lease term to get the full benefit of your bargain.
Common Lease Clauses - The balance of the lease must be reviewed by your legal counsel and discussed thoroughly to make sure you understand what you are signing. Do not get lulled into thinking the bulk of the lease is boilerplate; you never know what may be buried in the miscellaneous provisions.
Common Lease Clauses - The late charge is used to offset the cost incurred by the owner in collecting late rent and as a preventative measure against late rent. Most leases do provide a grace period: 3-5 days is typical. You can often negotiate more days, but I think it might be better to negotiate one or two forgiveness' of late charges per year as this will probably save you more money if you forget to pay on time. The interest rate is for longer, uncured monetary defaults and is applied to those overdue amounts in addition to any late charges.
Common Lease Clauses - The lease will set out the obligations of the parties for maintenance and repairs of the premises and you must be sure this accurately reflects your understanding. As a general rule, in a full service gross lease used for office space, or in any kind of lease covering multi-tenant property, the tenant will be responsible for the interior and the owner for the exterior and common areas.
See more tipsCommon Lease Clauses - The operating expense increase clause, or additional rent clause, allows the property owner to pass through increases of operating expenses to the commercial tenant. Normally the pass through begins in the 2nd year of the lease term. The 1st year is referred to the base, or comparison, year and increased expenses are compared to the base year - the difference is apportioned to all the tenants and passed through as an operating expense increase.
Common Lease Clauses - The term includes the commencement date, expiration date, and contemplates a possible delay in possession. If the space is vacant and in move-in condition, then barring strikes, riots, natural disasters or other acts of God, you will likely not have any delay in possession of the premises. If the space is subject to construction work, you may need to anticipate delays, or even establish a "drop-dead-date."
Common Lease Clauses - The use clause will appear with the basic business points and is important because if too tightly written it can affect what you are permitted to do in the premises later if your business model changes and your rights to sublease or assign the lease at a later time. Think about the ramifications of this clause with respect to your business, particularly if you are a retail or industrial tenant.
See more tipsCommon Lease Clauses - There are many erosive forces at work that can silently reduce a commercial property value. Property taxes increase annually, insurance costs constantly creep up, utilities and other operating expenses must be monitored and re-negotiated. The lease contract rent is a promise to pay, and is paid in future dollars. Inflation causes the future value of money to have less purchasing power - this is why commercial leases contain protective clauses against income erosion. These are known as escalation clauses.
Common Lease Clauses - You are likely to encounter the term "Substantially Complete" with respect to the owner's delivery of the premises. This is intended to mean ready to occupy, with only a punch-list of items to be completed or corrected. Make sure you negotiate for at least 30 days to submit your punch-list to the owner, as you will certainly be too busy with other matters to do it in less time.
Common Lease Clauses - You may receive assurances that the owner has no intention of selling during your lease term; that is not enough. The property may be transferred for estate planning reasons or by reason of death. If the owner says they have no intention of selling, then giving you a cap on tax increases should not be a problem.
Common Lease Clauses - You will be required to sign up to four copies of the lease in original signature. I suggest you initial every page of the lease when you are signing to prevent any accidental substitution of pages. You will next need to provide good funds to cover the first month's rent and any security deposits, or contribution to tenant improvements. You also need to deliver an insurance binder from the insurer.
See more tipsCommon Lease Clauses - Your lease will start with the basic business points, either in an outline form or using fill-in-the-blanks as with form leases. The lease will describe the legal entities involved in the transaction - be very sure this is done correctly, as mistakes here can be costly. If your business is a corporation or limited liability company, you certainly want to maintain the protection that theses business structures afford.
Creating a Proposal to Lease - A well-written proposal to lease will get you well into lease negotiations. Once the proposal stage is complete, you will be provided a draft lease for you and your legal counsel to review and fine-tune into a contract that accurately defines your agreement. An experienced broker can help you write a successful proposal to lease.
Creating a Proposal to Lease - Be aware that if you are offered a reimbursement for tenant improvements provided by you, it could cause a taxable event. Consult a tax advisor before agreeing to any cash allowance that comes as a reimbursement.
Creating a Proposal to Lease - If the property is a multi-tenant property you will need to define the owner's obligations related to the common areas.
Creating a Proposal to Lease - If you are negotiating for more than one space, I advise you not to go much beyond the 1st round of proposal responses or into multiple space-planning sessions without informing the property owners. Creating competition in a softer market can work well I your favor, so letting the other side(s) know you have other options can garner some nice concessions.
Creating a Proposal to Lease - If you have been provided with a floor plan of existing conditions, mark it up and include it with your proposal.
See more tipsCreating a Proposal to Lease - If you use hazardous materials, it is important to discuss that up front to avoid wasting everyone's time. In industrial space you will want assurances the space is clean before occupancy: Be sure to ask the owner for a complete written disclosure about prior uses of the premises.
Creating a Proposal to Lease - In preparing letters of intent, I prefer the approach which makes the proposal simple. This means to gain agreement on the big issues first and set aside smaller issues to work out later in the lease negotiations. This negotiation strategy relieves much of the inherent tension in negotiating, and makes agreement on the side issues easier to obtain.
Creating a Proposal to Lease - Most tenants are concerned about expansion rights so they can avoid moving if they outgrown the space. Owners are reluctant to grant any options since options never serve the owner's interests. Options to expand or renew are definitely considered concessions by property owners. Ask for what you want, but expect the owner's attempt to water down your rights as much as possible. In tight markets, option concessions tend to dissipate.
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