While each business and location requires unique considerations, fundamental advice holds true for anyone seeking their first storefront. Photo: BGStock72/Adobe Stock.
The far-reaching effects of the COVID-19 pandemic have spurred many to rethink their livelihoods, resulting in months-long streaks of abnormally high job resignations. While some sought same-industry roles with greater flexibility or pay, others have seized the opportunity to dive into new ventures.
For those seeking a fresh start, brick-and-mortar retail can prove a prime (and profitable) path. Yes, even in the age of Amazon, physical retail is drawing foot traffic beyond pre-pandemic levels, particularly at open-air retail centers. And with jobs surging and new residents pouring in, South Florida is an ideal target market.
While each business and location requires unique considerations, fundamental advice holds true. The following are key pointers for anyone seeking their first storefront.
1. Choose Location Wisely
Understand who your customer is, then pick your location accordingly. If you're opening a tutoring facility, you'll want to target a market with lots of children and sufficient income levels to afford tutoring. Banking on office workers stopping by your restaurant for lunch? Make sure there are ample businesses within close proximity.
Another key consideration: Are you a destination or impulse-based business? If you're counting on consumers stopping in on a whim, visibility and exposure are critical. If your business is a destination in itself, you may be able to take advantage of cheaper locations where visibility and exposure are less crucial.
Other location decisions may be made for you. Launching a liquor store? You can't be within close proximity to a school. Opening a pool supply location? You'll need approval to stock chlorine. Whatever your retail type, it's important to know the local zoning rules governing your business.
2. Research Market Rents
The best way to ensure you're paying a fair price is to know the market. Call around to gather information on rents and vacancies in your target area, or hire a commercial real estate tenant representative to do the legwork for you. Know that if you hire a tenant rep broker, you're not on the hook for the bill: Tenant rep brokers are paid by the landlord; their job is to help you find a location that meets your needs and guide you through the negotiation process.
3. Put Your Best Foot Forward
Have your business plan prepped and be ready to answer concrete questions. The landlord will want to see income and expense projections. If your business is a restaurant, a menu and chef resume are important to have.
You'll also want to have your financials ready and credit score as high as possible. Landlords will want to see that you are a good bet with have sufficient cash in the bank—12 months of rent at minimum.
4. Scrutinize Lease Terms
Lease lengths vary by landlord. If you're investing a lot in your space, you'll want the longest lease available. Be sure to factor in planned increases: CPI (cost of living) is at 7% today. Most landlords charge 3% annually, but this number will rise as CPI goes up.
You may also be asked to sign a personal guarantee. In doing so, if you leave halfway through your lease, you will still owe the remaining rent payments. Guarantees can be negotiated to shorter terms if the landlord is not assisting with build-out costs.
5. Don't Hesitate to Negotiate
Lower rents can often be obtained by paying in advance or taking a space the landlord is having a harder time leasing. You may also be able to get your landlord to contribute funds—yes, actual dollars—to help you build out the space for your business. This financial assistance is usually paid as a reimbursement after your business opens, or the landlord may offer abated (free or half) rent to help offset the costs for you to open.
6. Ask For an Exclusive
The last thing you want is a competitor opening a few doors down. This scenario can be avoided by requesting an exclusive, which protects your business by asking the landlord to not lease to other businesses that mirror yours.
7. Guard Your Future Revenue
Some landlords may require you to pay them a share of your revenue (percentage rent). This may be required if :
1. The landlord provides significant marketing events to help boost your sales (more common at higher-end lifestyle centers).
2. You agree to a significantly lower-than-market rent, but will offer a share of your revenues if your performance beats projections. If any of these terms are undesirable, you can always walk away.
8. Call in the Pros
The work isn't over when you have a contract in your hands. Once a lease is issued, it is absolutely critical that you have a commercial real estate attorney review the lease. Attorneys may not be cheap, but they will save you a lot of money in the long run by protecting you.
By coming into lease negotiations prepared, you will level the playing field and set yourself up for the best shot at success. Smart site selection and shrewd negotiating will pay dividends in the long run, saving you money and guarding against heartache.
Beth Azor is founder of Azor Advisory Services based in Weston, Florida. She owns and operates a portfolio of neighborhood shopping centers in South Florida and consults with retail landlords nationwide on effective leasing strategies.
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