When many new industrial tenants begin their search for a place to lease, they believe the most challenging aspect of the process will be finding prospective sites that meet their specific business requirements. However, the real challenge is understanding all of the terms in an industrial property lease agreement and how they will affect your business in the long term. During this period, the company’s stakeholders must take a more strategic approach to produce an outcome that satisfies both short- and long-term objectives.
One of the important aspects of this procedure is a matter of perspective. While comparing properties against one another is natural, this isn’t always the most productive approach. Instead, each property should be evaluated about a defined set of ideal criteria particular to your company’s needs and requirements. Using this method will change the way you think, but it will also affect how you lease or purchase property and, ultimately, how your business functions on a day-to-day basis.
Commercial real estate Corpus Christi offers many business opportunities, but you must know what you’re looking for in a prospective property. Here are some things to keep in mind during your search.
Things to Consider When Searching for Industrial Property
Timing
Is the property ready to be handed over? Is it leased, vacant, or in need of a renovation? Again, it’s important to determine this before making an offer, as it will affect the amount of time and money you’ll need to invest in getting the property up and running.
The difference between a property that is inhabited for 30 days or requires renovations and one that has been completely refurbished may result in a six-month delay before your business takes ownership. Vacant properties can be moved much faster, but they may also require a longer lease term to offset the cost of renovations.
If you’re considering a property that won’t be ready before your current lease expires, consider the holdover costs associated with your existing premises, which can frequently total up to twice your normal rental rate.
Net Effective Rate
Comparing the financial conditions of several potential properties is more complex than comparing the cost per square foot. For example, each lease might have a specific start date, size, monthly rental rate, escalations, and tenant improvement allowance. Brokers use the net effective rate to make an educated and level comparison of their choices.
This is the rate that a tenant would pay if they leased the property for the entire term and utilized every dollar of the tenant improvement allowance. The net effective rate factors in all conditions provide a clear apples-to-apples comparison.
For industrial consumers, commercial property for sale has distinct qualitative and operational features that must be carefully considered before final selection. Nonetheless, the net effective rate will provide you with a good idea of your monthly and annual property costs.
Tenant Improvements
The cost of remodeling an area is usually considered a tenant improvement, but this is just one aspect of this crucial component of a new property and lease. First and foremost, it’s critical to distinguish between improvements that are essential for your company and those that are just nice.
The next factor to consider is whether the landlord or the tenant will be responsible for the cost of these improvements. And also, what percentage of that contribution will be amortized or forgiven over the life of the lease.
Another important point to consider is who will do the task. This is a serious problem since monitoring the tenant improvement process will take hundreds of hours away from your team and core business. Therefore, you’ll need to hire a competent project manager to manage it with your team’s supervision.
You’ll also need to be aware of the time frame in which these improvements must be completed and ensure that it doesn’t conflict with your company’s ability to move in and start using the space.
Financial Impact on Your Business
Once you’ve figured out the various expenses involved with each alternative, you’ll want to analyze how each compares to your company’s profit and loss statements and balance sheet.
This is critical since industrial users’ second-largest expenditure after labor is real estate. Therefore, the analysis should include a comprehensive review of your lease term, options to renew or expand the space, and any termination penalties.
This is the only way to make a truly informed decision regarding your company’s next industrial space.
Operational Considerations
In addition to the aforementioned economic criteria, industrial users must evaluate prospective properties practically. Manufacturers, distributors, and life science firms use metrics relevant to their industry to measure how effectively their operations are going.
The three most important operational factors to consider are travel time to market, quality of labor, and utility rates.
Depending on your specific circumstances, other operational measures may be more important. Nevertheless, these three factors should be given significant weight in any decision-making process.
In Conclusion
The search for new industrial space is a complex and time-consuming process. Users must consider various economic, financial, and operational factors before making a final decision. Nonetheless, if you keep the above criteria in mind, you’ll be well to find the perfect property for your business. Commercial real estate Corpus Christi offers a wide variety of options for businesses of all types.
