How to rent a small warehouse space?
With the surge of e-commerce, the demand for small warehouse facilities is escalating at an increasing rate. As per the industry leaders, renting a facility is a better bet when the business volumes are low or lack the necessary capital, or are unwilling to make a huge investment.
Tying up a considerable amount of capital in an asset doesn’t make sense when you can more effectively use it to grow a business. Buying a small warehouse space is like having a pet elephant. It involves enormous capital investment and commitment and a significant amount of recurring expenses (including repairs, renovations, maintenance) related to property for an unforeseeable future. However, as beneficial as it may sound, renting small warehouse space is a daunting task.
Careful planning and envisaging a space for present and future needs is critical to make the right choice of a warehouse for your organization or personal needs. When you are renting a space for personal or business purposes, it is imperative to take into consideration a few points mentioned below:
Purpose
It is pertinent to know the purpose of renting small warehouse space, whether you intend to use it for personal needs or business requirements. Whatever your purpose is, you need to have a precise idea about how much space is required and how you will utilize it. Determining the warehouse’s use will depend a lot on the nature of your business and your needs. So, it would be best if you decide whether you’re looking for a place to manufacture or a place to store, package and ship your product, or a combination of the two.
Location
Location plays the most vital part when scouting for warehouse space. It is necessary to identify what kind of place suits your needs and requirements the best. Based on the purpose and use of the warehouse, few things to consider are:
- Whether the warehouse should be in an industrial area or a commercial space?
- Whether it should be at some remote location or close to busy areas?
- How good is the connectivity from the warehouse to the main roads or highways for transportation ease?
- Is the warehouse accessible through public transport?
- What is the warehouse’s proximity to facilitate transportation via various modes such as road, air, rail, and waterways?
Layout
The layout of a warehouse is as pivotal as its location. Different warehouse facilities offer a variety of options for their lessee. Some of the layout types available are:
- A manufacturing space for creating, building, or assembling products.
- A storage space to store, pack and ship the goods.
- A flex space that combines office space for operational use and storage or manufacturing.
Depending on your business’s nature or your requirement, you can choose the layout that best fulfills your specifications.
Some other questions to answer while choosing the layout are:
- Does the design of the layout aid the smooth flow of inventory?
- Does the layout have an accessible arrangement and set up to store and retrieve inventory with ease? Does it have a racking unit or open floor space to stack up the storage?
- Is the layout designed in a way to promote quick visibility of the inventory?
- Does the warehouse have a space for inbound functions like receiving, processing, and storing incoming inventory?
- Whether the warehouse has a loading and unloading zone?
- Does the warehouse have a separate area for outbound functions, such as the picking and dispatch area?
While renting the warehouse, one should keep in mind the layout to efficiently and optimally utilize space or create and modify the area to suit your requirements.
Zoning Area
Once you have decided the location that suits your purpose and use of the warehouse, it is crucial to check if your business is admissible at a specific location. Call the zoning department of the country or the city to ascertain permissibility at a particular location. Certain businesses are forbidden from operating in certain areas.
Property infrastructure
When looking to rent small warehouse space, the basic facilities, services, and installations at any warehouse are of utmost importance. What features of the property may appeal to you depends a lot on the nature of your business or personal need and the expected number of employees or customers.
The prerequisites of any warehouse with fine infrastructure are:
- Power, electrical connections, and illumination across the space.
- Overhead doors to facilitate the flow of inventory.
- Sufficient private or public parking space.
- Operational area and meeting room for the employees.
- Clean and functional public or private restrooms
- Availability of the required workforce in the vicinity
- Air-conditioned or temperature-controlled warehouses
- Dining area in the warehouse or eateries in the vicinity
- Safety features for any unfortunate occurrence and hazards (smoke alarms, sprinklers for fire prevention, etc.)
- Break rooms
Lease type
When exploring various options to rent warehouse space, it is crucial to note the lease your option requires. Different lease types calculate rent considering multiple expenses. There are three types of leases, which are:
Gross lease:
It is an all-inclusive lump sum amount of rent that a tenant pays to the landlord. The property owner pays all the expenses (taxes and insurance) and maintenance costs related to the property. However, janitorial services and other utility charges are subject to the understanding and agreement between the lessee and the lessor.
The advantage of this type of lease is that, apart from paying the rent, the rentee isn’t responsible or accountable for any expenses (repair or maintenance) related to the warehouse space.
Net lease:
Net lease is smaller base rent charged by the landlord from the tenant. However, the tenant is responsible for all other usual operational, maintenance, and repair costs on actuals. It also includes taxes and insurance.
A net lease can be of several types depending upon the terms and conditions and the rent calculation methods agreed upon by the tenant and the landlord.
- Single Net Lease (N Lease): In this kind of Net lease, the tenant assumes the responsibility of building property tax on a pro-rata share basis. Thus, the tenant pays the base rent plus the taxes on pro-rata share. The landlord covers all other building expenses except utilities and janitorial services.
- Double Net Lease (NN Lease): In this kind of lease, the tenant pays the base rent. However, the tenant and landlord share the property taxes and insurance costs on a proportional basis agreed upon by them. The tenant is responsible for the janitorial and utility expenses. The landlord withstands the rest of the expenses.
- Triple Net Lease (NNN Lease): It is one of the most popular and landlord-friendly lease types. The lease amount in this type of lease can fluctuate from month to month or year to year based on the increase or decrease in the operating expenses.
The rentee pays expenses such as property taxes, insurance, and the CAMS (common area maintenance items) on a pro-rata share basis in addition to the base rent. Apart from this cost, the rentee also has to bear janitorial services and utility charges.
Despite so many additional charges on the base rent, the rentee’s cumulative amount of rent may still be less than the gross lease, as the tenant undertakes more responsibility for the building.
Modified Gross Lease/Modified Net Lease:
Modified Gross Lease is a perfect amalgamation of the tenant-friendly Gross Lease and landlord-friendly Net Lease. The tenant is supposed to pay one lump sum amounts like the gross lease, which includes “nets” like property taxes, insurance, and CAMS. Rentee and Renter can negotiate which “nets” to have in the base rent. Unlike Triple Net Lease (NNN lease), the lump sum rent amount does not fluctuate based on the increase or decrease in the “nets.” Nevertheless, the tenant controls janitorial services and other utility costs.
Duration
While exploring and evaluating various warehouse spaces, it is essential to bear in mind the duration for which you intend to hire the space. It depends on multiple factors like the nature of your business, potential expansion in the foreseeable future, the stability of your business, availability of capital, etc. Nonetheless, it is advisable to be mindful of how long you wish to stay at a particular location as different warehouses have different tenure of minimum and maximum lease.
The readiness of the owner
A particular location or property may tick all your brackets; however, it is necessary to check if the space’s landlord is ready to let out his property for your business or personal need. Just like a lessee has specifications and requirements, a lessor has preferences too.
Virtual research and visitation
Once you have explored and narrowed down the list of properties that holds your interest and meets your needs and requirements, it’s time to make calls to collect detailed information regarding the shortlisted properties.
If a virtual tour of the property is available, make sure to do one. That way, you can have a better idea about various aspects of the property without physically visiting it.
If feasible, physically visit as many properties as possible to check what the property offers for real. An in-person visit can better feel the place and how aptly it may or may not suit your business or personal need.
Apply
Once you find the space that suits your requirements and needs, all you need to do is apply to rent the property. The landlord, or the realtor, or the commercial property management company, whoever manages the property may do its due diligence. They may run a background check on you and do the income verification. You must provide correct and precise information about how you intend to use the space, what your business is about, and relevant and accurate information about yourself as well.
Review the lease document
Leasing a property is a huge investment and commitment; it is better to understand and agree to the contract’s terms and conditions before you’re legally bound by it.
Once the parties involved have agreed upon renting the property, it is essential to review the lease’s blank copy. Read and understand the terms of the agreement and decide if those terms are suitable for you.
You can also seek the help of a lawyer or your legal team to review and understand the terms and conditions of the lease, your role, and responsibility towards the property after leasing. It is vital to clarify all the doubts and negotiate the terms and reach a consensus that is beneficial to both the parties involved. It is necessary to have utmost transparency between both parties.
When reviewing the pro forma lease, clarify all costs and expenses involved. Make sure you are aware of any hidden expenses. Calculate your projected cost by including property maintenance cost, utility fees, and other additional costs. Clear out all the doubts and confusion about everything before you sign the lease.
Some common things to look for in the lease document are:
- Security deposit
- Length of the lease term
- Lease term start and expiration date
- Rent per square foot and monthly rent
- Additional expenses such as maintenance and repairs, utility services, taxes and insurance.
- Yearly rent escalations
- Sublease rights
- Renewal options
- Terms to break the lease
- Re-modelling or expansion option and expenses covered/charged for the same.
- Arbitration clauses
- Payment Plan (monthly, quarterly, or half-yearly)
Sign
The final step is here. After all the exploration and evaluation of different properties, once you have found the property in a location that satisfies your purpose, budget, and requirements (facilities, amenities, and permits), you can go ahead and sign the lease agreement. Make sure you have all the necessary documents for present and future use.
Bingo!!! Once you have signed the documents, the property is legally yours to use. You can move in as soon as you want. However, it is necessary to contact your realtor, property manager, or landlord. Complete the required formalities of switching certain utility expenses to your business name to avoid any issues later.
Renting a warehouse is a significant step towards expanding your business. It is essential to identify a warehouse space that facilitates the business’s smooth operation and enhances growth opportunities. Make sure to invest enough time and effort to research multiple properties and weigh their pros and cons before taking the big step of finalizing the one.
It is advisable to take professional’s help as they can help you go over several property options with a fine-tooth comb. A commercial real estate agent and an attorney can make your task easier, and ensure you choose the perfect warehouse space, and protect your assets and legal rights.
Where to look for a small warehouse space?
To locate small warehouse spaces available for rent, you need to look at the local zoning map of the area you are interested in. Find out the industrial parks or flex spaces available in the area of your interest.
The new age way to locate multiple options of warehouses available on rent is commercial property management companies’ websites. A quick search on the websites will lay out numerous options at various locations with varied features and price ranges. Digital databases of the properties make it easier for you to search and compare different properties from your home or office’s comfort.
You can further find the warehouse spaces in business and real estate magazines and publications.
Once you have shortlisted the properties that fit your criteria and needs, connect with the commercial real estate professional or the property owner. Fix appointments for visitation.
An in-person visit helps you to assess better whether the property meets your specific needs. It is advisable to seek services of a professional realtor to find the property as per your unique needs.
Having a sense of the market and knowledge of zoning issues, he can offer recommendations and identify potential drawbacks of the properties you may overlook. Moreover, your realtor will do all the groundwork for finding the warehouse that fits your criteria. He does the research, calls listing agents/landlord/building owners and also checks availability of the properties. He also collects information about the rent, type of lease and any other possible additional expenses. Furthermore, he gathers floor plans, studies the property features, checks the possibility of re-modelling according to your criteria. He will narrow down the best properties to suit your needs. Then the ball is in your court to choose the one for you.
Some of the websites to look for a small warehouse space are: