Top questions to ask when looking for industrial space

If your company receives, manufactures, ships, or stores physical products, then you are going to need to look for warehouse space, whether through a third-party logistics company or decide to rent or own your own space. However, before you start searching, it's essential that you determine what your business' specific needs are when it comes to warehouse space, because not every space has the same infrastructure—for example, not all can accommodate 18-wheeler deliveries, or the building can’t support the 40-ton crane that you need. Keep in mind, leasing the wrong space can cost you thousands, so you and your broker should do your due diligence—don't just rely on what the landlord's listing agent tells you. 

Once you have a notion of your ideal size, layout, location, and budget, you are ready to begin your warehouse search and start touring spaces.  Here are a few questions that can get you started in zeroing in the right property.

1. What is the zoning? You need to ensure the property is zoned for warehouse use. Remember to look into the Property’s jurisdiction, as there are places where there is no zoning (i.e. Houston, Harris County, for example), but might have different codes or requirements.

2. What is the currently approved use? If the property was previously approved for warehouse & distribution use, and your use is manufacturing, it’s likely that you will need to apply for a change of use permit. Again, check your jurisdiction for details.

3. What electrical power is available? If you're a manufacturing business, then you probably need a lot more electrical power than average (like 3-phase, 600 Amp).

4. What is the clear height? If you want to maximize your ability to store products, then you need high ceilings. Do you need special vents, intakes or other roof equipment? Jot that down too.

5. Is the building crane-served or crane-ready? Depending on your business, you might need special machinery (and building) to - literally - do the heavy lifting. Verify the number of cranes, tonnage, maintenance logs, etc.

6. What type of loading is available? Does the space have grade level or dock high loading? If you're expecting deliveries via 18-wheeler trucks, then you need dock high. If using rail-served warehouses, what’s the distance to the spur?

7. How big is the land you can use? You might need outside storage, or just need enough space to make sure your 18-wheeler can to back in or is able to turn around. Also important is to find out if you can park your cars overnight, due to local regulations, your landlord’s own rules, or just for safety awareness.

8. Is the warehouse sprinklered? Not every warehouse has sprinklers, but you may be required to have them depending on your business.

These questions are just a start, but it’s important that you go into tours well prepared and ready to evaluate specifics that revolve around your business.

5 Costs to keep in mind when Leasing Retail Space

Market characteristics, location, and size will often play the biggest role in determining your costs to rent commercial space. Though when you look more closely, there are a number of additional costs that might surprise you if you're not prepared.

You can make sure you don't have unplanned expenses in your budget by factoring in these elements beforehand.

Let's take a look at five costly items to account for when leasing retail space.

Common Area Maintenance (CAM) Charges

CAM charges tend to be more variable than the monthly lease rate, and so can escalate at a different rate. If you don't obtain a cap on CAM expenses, you might see annual increases of more than 3-5%. You should also be aware of capital expenditures to common areas. Tenants should not be responsible for these expenditures, or at the very least only to the extent that they are amortized over their useful life.

If it's an existing center, examine the previous two to three years of costs in order to properly estimate a base year. This should help you save money by avoiding miscalculations or misrepresentations of the CAM charges.

HVAC Issues

HVAC issues often stem from outdated or underserviced systems. An outdated system can be costly, often requiring a replacement of Freon, a material with increasing regulations, limited domestic production, and rising prices. Additionally, the cost of replacing compressors and coils, and hiring a qualified HVAC tech, can add up quickly.

Getting a service history to ensure the system has been maintained properly or was recently installed can help you avoid the surprise cost of a significant repair or even replacement.

A unit that isn't up to code can also catch you off guard, and making sure the system complies with current regulations can have its own surprise costs. However, addressing those issues early can help you avoid even higher costs in the future.

Code Compliance

There's a laundry list of property elements that must adhere to code standards in order for a property to be deemed usable by the city or state. Meeting code for items like electrical components or fire sprinkler systems, for example, is necessary for occupant safety and security, but comes with added costs. Changes in use can trigger certain code requirements as well, and thus require additional permits - which can delay or impede your occupancy.

Getting an architect or engineer to look at the space early on and coordinating with the city from the beginning are extremely important steps to address any potential code issues before they become a costly problem down the road.

Tax Assessments

Just like CAM charges, commercial property taxes are a variable cost, not a fixed one. When moving into a retail space, it's important to remember that property values change, and therefore so do taxes. Additionally, expansions or renovations to the property can result in your taxes being reassessed. This means your tax bill in a triple net lease (NNN) could potentially double or even triple over the course of several years. If you're leasing a property that is sold to a new owner, the tax assessment can go up based on the value the property was sold for, often resulting in a much larger tax bill.

However, we are of the thought that RE taxes are controllable. Make sure that your Lease has language that puts that onus on the Landlord. This is not uncommon, and Landlords have people dedicated to help in this regard. You just need to ask.

Utilities

It may seem obvious, but when leasing a space you should always verify that the utilities are set up and work properly. Problems with utilities are common and can have costly ramifications. For example, sewer lines can be clogged or there may be water lines that don't work. The cost of utility repair and maintenance can be extremely high based on where certain elements are located. Furthermore, if your space is currently a shell space, you need to make absolutely sure that the utilities are brought to the suite. Otherwise, it can be not only an uncomfortable conversation with your Landlord (that should never happen in the first place), but also costly.

Whether we like it or not, there will always be some surprises when it comes to leasing retail space. But through thorough planning, awareness, and budgeting you can navigate those unexpected costs and make sure you are as prepared as possible for any surprises.