Looking for a commercial space is complicated and can get expensive - quick. The key to securing funding, finding the right location, and evaluating commercial property accurately is working with a broker.
Are you looking for a new office space? Or looking to open a new restaurant? Do you need to rent a warehouse?
These are all questions an experienced commercial real estate broker can help you answer. But remember - not every real estate broker is the same. In this article, we’re going to walk through everything you need to know to identify the right broker to help you lease your next commercial property.
Let’s dig right in.
If you still aren’t convinced, let’s talk about the three big reasons why you should hire a licensed real estate broker.
Negotiation is an art as much as it is a science. And the truth is, most people are terrible at it. It’s your broker's job to get you the best possible deal on the property you want to rent or buy.
Experienced brokers know how to negotiate well, and this skill is developed throughout their careers. They understand the market and the temperament of the person sitting on the other side of the table.
A seasoned broker understands the nuances of negotiation, and may have a few techniques up their sleeves. But, most importantly, they're rarely emotionally invested in the deal that can cloud their judgment.
You, on the other hand, might be willing to add $10,000 more to get that "perfect" location. Your broker knows what bargaining cards you hold and can prevent you from making any rash decisions.
Buyers typically have a good idea of what kind of property they want: the space, location, budget, parking, and more, but there are factors that they may not have thought about.
A proactive commercial real estate agent will think ahead and address issues that may not immediately cross your mind, like potential leaks, roofing problems, mold, and insect issues. Their experience and knowledge can save you thousands of dollars of phantom costs down the road.
Sellers know how much they want for a property – whether it's a one-time sale or yearly lease. But are you confident about that number? Have you done the market analysis and looked at other properties to know if you're in the reasonable range?
An experienced broker has access to data that includes factors like crime rates, neighborhood demographics, and access to public transport, which may not be publicly available.
The paperwork associated with commercial real estate deals are long and complex. Purchase agreements alone often go upward of ten pages, not including federal, state, or local documents.
On the other hand, your commercial real estate broker can help you find mistakes, omissions, and any red flags that may cost you cash down the line.
For instance, as a tenant, you may find defects in the property after signing the papers, but none of those defects have been documented. No contingency or escape hatch built in the agreement supports the tenant, which means they'll have to fix these issues out of their pocket.
Your real estate broker will act as your in-house counsel, who will examine the property and review all the paperwork to ensure you're getting the best deal possible.
Now that you understand the benefits of hiring a broker, let’s go over how you can find the right one for you.
Finding the right broker starts with knowing what you need. Are you looking for a warehouse, a retail leasing space, or something else? The broker you hire should ideally be an expert in the type of commercial space you need.
For instance, you'll find brokers who represent office, industrial land, investment land, and retail spaces. According to Green Street's Commercial Property Price Index, commercial property prices were up by 24.4% year-over-year as of December 2021. Self-storage and industrial saw the highest increase in price, at 66% and 41%, respectively.
It's imperative to find someone who understands these market trends and has the credentials for success in what you're looking for.
Another critical factor to consider is location. Your broker will ideally know potential properties, understand the temperaments of different landlords, and have a firm handle on the negotiation styles in a given area.
Each type of commercial property has its own nuances, so it’s important to find a broker who has extensive experience buying and selling the type of property you’re looking for.
The average return on investment for commercial real estate assets historically is approximately 9.5%, which is in line with major equity indices. Given the potential upside, commercial real estate is a lucrative field to get into with a low barrier to entry and flexible working hours.
20% of brokers have had their real estate licenses for a year or less, which means you'll meet agents who are older in age but rookies in the business. Additionally, many dabble in real estate part-time, so make sure you find out how many projects your broker has been a part of throughout their career.
The first thing you can do is check if they have taken the necessary certifications to become a licensed commercial real estate broker. And how long have they worked in the industry? Do they have any customer reviews or testimonials?
Checking your broker’s academic qualifications can be a good indicator of expertise. In fact, 45% of realtors have completed a bachelor's or graduate degree.
You may also consider working with a team of brokers rather than an individual. Working with a team with varying levels of expertise can help provide a broader and deeper understanding of what you’re looking for.
Interview your broker just like you would interview a potential job candidate. Ask specific questions and try to get all the necessary intel you need to trust your broker. For example:
Don't be afraid to talk dollars! Ask questions about how they saved their client's money other than rent and commission. Use this opportunity to gauge if the agent's credentials align with what you want to accomplish.
A great example of conflict of interest is when you're a tenant, and your broker represents mostly landlords in a specific area. Or they may have their property that's on the market. 37% of licensed brokers own at least one secondary property.
You may also want to find out if they have other clients interested in the same property as you. How would they address such a situation? Such matters may be more critical to some tenants than others. Conducting your research and going through the interview process is essential to find any potential conflicts of interest.
An ideal commercial real estate broker for you is someone who represents clients similar to you and has your best interests in mind.
This primarily involves trust and comfort. Trust between you and your broker is imperative, given how commercial real estate can be a "big ticket item."
Building trust can be tricky in the initial phase. Everyone puts their best foot forward when pitching to new clients. But pay attention to their follow-ups, communication style, and if they're offering any value adds. For example, how long does your broker take to respond to your enquiries and questions? Have they taken into account your suggestions and requirements when showing potential properties? Clarity and consistency in communication is key in establishing trust.
Then there is comfort. Do you enjoy working with your broker? Having a good working relationship can make the process easier and more fun for all parties involved.
Finding the right commercial real estate broker to work with is one of the most crucial steps in your buying and selling process. Here are the key takeaways: