If you have clicked on this blog, you might own or work with a business looking to rent a commercial property (shop, warehouse, office, etc.).
No matter what type of commercial leasing you are looking at, this blog is a must-read. It covers common yet important aspects one should know about when renting a commercial property.
What is commercial leasing?
Let’s start from the basics, what does the term commercial leasing even mean?
Commercial leasing refers to the process of renting or leasing property that is used for commercial purposes. It involves an agreement between a property owner (landlord) and a business or individual (tenant) for the use of the property in exchange for payment, typically in the form of rent.
Well, you got that bit. Let’s move onto the next part.
What are the types of commercial properties that can be leased?
In day-to-day life people generally come across retail or office spaces for lease, but there are actually 7 different types of commercial properties that can be leased.
Namely- Land, Industrial, Retail, Office, Multifamily, Hotel, and Special Purpose.
But, most people are generally concerned with leasing offices. Even in that, there are various bifurcations based on the type of tenants, class of office, and so on.
Naturally, your next question would be…
Where should I lease my office space?
Multiple things go into choosing the best location for your business. When it comes to Mumbai specifically, deciding which micro market to be in, becomes a pivotal problem to solve.
So why exactly is this decision important? 4 reasons.
Optimal Location: Ensure visibility and accessibility in high-traffic areas for customer convenience.
Target Audience Alignment: Choosing a location that suits your target segment; upscale neighborhoods for high-end fashion or near a college campus for budget-friendly goods.
Competitor Analysis: Gain insights by analyzing competitors' locations. A concentration of successful competitors in an area may indicate a thriving market.
Cost-Benefit Balance: Balancing between the benefits of a prime location and associated costs; high-rent areas attract more customers but may strain your budget, while a less expensive location can offer cost savings but with lower foot traffic.
While we are on the topic of location, we must shift towards the broader spectrum of office space planning, and what is important for that.
Before that, let’s discuss what all is included in office space planning.
One is definitely location, which we covered in the previous section. The next important section is about office cost optimization.
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What are office costs?
All companies function under a certain budget and hope to build on that by generating profits, right?
This aspect of office planning can help your business maintain financial fitness while scaling. Broadly speaking, office costs include daily-use equipment, decor, employee salaries, and any over the top perks. Although, office costs don’t include maintenance costs which are separately accounted for.
As a rule of thumb, office costs that provide very little impact to the company's image and integrity, should not exceed more than 20-30%.
Implementing this strategy will not only enhance your bottom line, but also contribute to the overall success and sustainability of your business.
While we are on the topic of office costs, there are certain crucial aspects that go into choosing a certain office. All of which will contribute to office costs in the long run.
Many questions pop up, What layout to choose? How to come up with the perfect design? And so on. When it comes to this particular decision, the questions are far-reaching and never-ending.
So first, let’s break down this problem into solvable chunks. Beginning with,
What is an office layout?
If you have been working for long enough, you might have come across various office layouts, like cubicles, open plans, activity based workspaces, bull pens, and so on.
Every layout has its advantages and disadvantages, you have to keep those in mind and choose the office that resonates the most with your business.
For instance, a Software-as-a-Service (SaaS) company will have vastly different needs compared to a leading media organisation. Similarly, startups often thrive in an environment that encourages collaboration and will benefit more from open layouts whereas established multinational corporations (MNCs) may prioritise individual workspaces, and choose to go with cubicles.
Next, we move on to the nitty-gritty of office interiors, covering interior designs of various sections within the office.
How to choose the right interior design for your office?
Imagine stepping into your work domain – not just another cubicle, but a space that reflects your brand’s personality, sparks your creativity, and fuels your productivity.
This is the power of a well-designed office space. It is a gateway to the values of your company and your brand. Essentially, an office space should be designed in a way that not only favours aesthetics for your brand but also values productivity, utility and comfort.
So, exactly how far do interiors go in deciding productivity?
According to Dave Alan Kopec, a specialist in the field and professor at the New School of Architecture and Design in San Diego,
It goes without saying, that for choosing the right interiors you need to answer two questions-
What should your company’s office reflect? Is it your unique brand voice, the extraordinary work ethic of your employees or rather the values you stand for?
What objectives do you want to accomplish by choosing a specific design? There are various objectives that founders wish to fulfil through their office interiors. They can range from boosting employee morale and can go as far as improving their professional image in the market.
If you can answer these questions well, you would have enough direction to go about designing your office interiors.
Having gone through the above chapters, you would be fairly clear about what type of office to lease, where to lease it and the type of interiors you should ideally go for.
The next chapter will deal with the headache-inducing aspect of commercial leasing. Yes, you guessed it right. Documentation.
Commercial leasing is a very tedious process, involving a lot of paperwork and legal considerations. But arguably the two most important documents are the leasing agreement and the letter of intent.
What is a commercial lease deed and why is it important?
Let us say you use property on lease. You set up your store on this leased-out property and run your business successfully. One fine day, the landlord demands you to move out all of a sudden. What can you do in that situation? How can you prove to him that what he is doing is unlawful?
This is exactly why having a lease deed is a crucial document while renting a property. The lease deed protects the tenants from such events by clearly stating the lease's rules and regulations.
For example, in the above case, if the landlord asks you to vacate the property abruptly without a valid cause, you can refer to the lease deed to prove your rights as a tenant.
Does it make sense? You can check out the entire format and process of filing a lease deed here.
Another aspect that is important under this is negotiation of the lease.
Why is negotiating the lease important?
Negotiating a commercial lease is a critical step for both tenants and landlords. These leases entail a substantial long-term commitment and can significantly impact a business's bottom line. You can negotiate various aspects of the lease to your benefit. Accepting the lease conditions is never a wise choice, when there is enough room for betterment.
Thus, it's essential to understand the legal considerations that come into play during lease negotiations
Moving on to,
What is a letter of intent?
When negotiating multimillion-dollar deals in real estate, precision and clarity are essential. The Letter of Intent (LOI) emerges as the foundational document that initiates these vital discussions.
An LOI is a non-binding document that outlines the preliminary terms and conditions under which a real estate transaction may take place. It is typically drafted by the potential buyer and presented to the seller as an initial expression of interest.
Despite its non-binding nature, the LOI is an indispensable component of the transaction process. Why, you might ask?
At its core, the LOI serves as a declaration of intent. It says, "I am serious about this transaction, and here are the terms and conditions I propose."
By formally putting this intent into writing, it establishes a level of commitment in the negotiation process.
Up until now, we discussed various aspects of the leasing process. The final piece of the puzzle comes with tying all these threads together and mapping out an elaborate plan including all the elements, from start to finish.
Crafting a step-by-step plan
Let’s summarise from the beginning, shall we?
Step 1: Determine Your Requirements Before diving into leasing, define your specific needs – type of property, location, size, budget, and any amenities required.
Step 2: Budget Planning Set a comprehensive budget considering rent, security deposit, maintenance costs, utilities, property tax, and Common Area Maintenance (CAM) charges.
Step 3: Property Search Explore online portals like PropReturns, consult real estate agents, and leverage your network for recommendations to find the right property.
Step 4: Property Inspection Conduct thorough site visits, scrutinising property conditions, amenities, location, accessibility, and legal compliance. This process helps to determine the ideal space for a business, thus avoiding surplus or lack of space.
Step 5: Negotiate Terms Engage in negotiations with landlords on key terms like rent, lease duration, security deposit, and specific provisions aligning with your business needs.
Step 6: Due Diligence Before finalising the lease, conduct legal reviews, title searches, and scrutinise lease terms, ensuring they align with your business goals. Make sure to engage an attorney to validate and notarize all terms and conditions.
Step 7: Sign the Leasing Agreement Once terms are agreed upon, sign the leasing agreement, ensuring all parties, including witnesses, are on board. Make sure that both parties retain a copy of the agreement for record.
Step 8: Pay Security Deposit and Rent Fulfil financial obligations by paying the security deposit and initial rent as per the agreement. Remember to retain all receipts and transaction records.
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As you move through these steps, you will realise how much of your time is eaten up trying to finalise your dream office. Naturally, the next on your question on your mind would be,
Why should you hire an office space rental agency?
Whether you're a startup looking for a cost-effective solution or an established enterprise seeking to expand, the process of finding and securing the ideal office space can be challenging.
This is where office space rental agencies come into play, offering a wealth of benefits that can make your journey smoother and more efficient.
How can we help ?
PropReturns is a commercial real estate marketplace that helps businesses find and lease perfect office space. Our platform offers a wide range of features and services to help tenants through the entire leasing process, from finding the right property to negotiating the lease terms.
Here are some of the ways PropReturns can help you lease a perfect office space:
1. Extensive property listings PropReturns has a database of over 1 million commercial properties for rent across India. This gives you a wide range of options to choose from, based on your specific needs and budget.
2. Comprehensive search filters PropReturns allows you to filter your search results by a variety of criteria, including:
- Location: Search for properties in specific areas or cities.
- Size: Search for properties of a specific size range.
- Budget: Search for properties within your budget range.
3. Expert advice
PropReturns has a team of experienced commercial real estate experts who can help you find the right office space for your business. They can also provide guidance on negotiating lease terms and other aspects of the leasing process.
4. End-to-end support
PropReturns offers end-to-end support for tenants, from finding the right property to signing the lease agreement. This includes:
Shortlisting properties: PropReturns can help you shortlist properties that meet your specific needs and budget.
Scheduling site visits: PropReturns can help you schedule site visits to the shortlisted properties.
Negotiating lease terms: PropReturns can help you negotiate the lease terms with the landlord.
Signing the lease agreement: PropReturns can help you review and sign the lease agreement.
In conclusion, partnering with a good office space rental agency can be a game-changer for your business. It offers the flexibility, cost-efficiency, and professional image that can set you on the path to success. So, if you're looking for a strategic move that combines convenience with value, consider renting office space through a reputable agency.
On an ending note,
In this blog we tried to compile all our expert insights into one master-resource. Hopefully, you will be able to make great use of this during your office leasing journey.
Editor's note: This blog was originally published on Jan 11, 2024 but was recently updated on Mar 15, 2024.
