How to effectively evaluate a commercial property

Many of us have noticed the stretches of vacant storefronts and other open commercial space in our communities. While these properties may present an opportunity for deal-hungry investors, there’s no clearer sign that we are in a tenant’s market.

In my work managing and leasing commercial property, I frequently emphasize to investors the importance of providing outstanding service to existing tenants to retain strong occupancy rates in their buildings. I entered this industry in the mid-1990s as a property manager which, in my opinion, is the greatest way to learn real estate because it gives you an in-depth understanding of the needs of both the landlord and the tenant.

And today, tenants’ needs are at the forefront. Prior to renewing their lease, many are taking the time to evaluate all the options available. Where in the past tenants may have been content to look at comparable locations within the immediate area, they now have no reservations about scouting properties far and wide before committing to renew or terminate their existing lease.

Attractive rents, deals and incentives such as $10 to $20 per-square-foot improvement allowances have many thinking about calling in the movers. In fact, given the state of the market, I would not be surprised to see businesses relocate multiple times over the coming years as they jockey for better financial footing.

While it’s no secret that there are deals to be had, chasing the cheapest rent isn’t necessarily in a company’s best interest. If you are a business considering relocating, I strongly urge you not to make your decision merely on the economics of the lease.

So often, I have a new business that is not a fit for a certain location but insists on pursuing the site solely based on the rent structure. They want to know “where can I get the best deal?” The question they should be asking, however, is “where can I make the most money?”

Rent is only one of many factors that can affect the success of your business, and as a tenant you shouldn’t lose sight of the big picture. There are many aspects to consider when determining the right location for your company, including:

• Business base. Study who your customers are and where they are located, and position yourself accordingly. For instance, if you are opening a day care center, you need to be sure the demographics of the towns around you have plenty of children and young couples to support your business.

• Foot and vehicle traffic. Study the traffic patterns around your potential location — are the streets and sidewalks full? Is there adequate and convenient parking? There may be a reason you are getting a great deal on your rent.

• Visibility. For convenient retail concepts such as ice cream stores or coffee shops, having an extremely visible location is of paramount importance. Many retailers are taking advantage of this market to move up to street-front sites and out lots on well-traveled byways where the visibility is greatest.

• Co-tenants. Make sure you have strong neighboring businesses that can help drive traffic to your location. For instance, a salon catering to women might do well to locate next to a grocery store, as opposed to a tire shop. A good landlord should also be interested in attracting a successful mix of tenants that support one another.

Work with your broker to develop a checklist of due diligence points to determine your needs and your potential for success at a location. Whether you are an expanding branded name or an independent retailer, you should always do your homework and consult with a real estate professional on the site selection process before signing a lease.

• Theresa Schulz is managing broker of Schulz Properties Ltd. in Downers Grove and Chair of the Mainstreet Organization of REALTORS® Commercial Committee.

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