How to Lease an Industrial Warehouse
A question that we hear a lot here at INCO Commercial Brokerage is, "How do you lease an industrial warehouse?" The process can be stressful for smaller businesses that are now ready to move their garage operation into an industrial warehouse. There are a number of things first time users need to look at and consider. For example, deciding the location, proper square footage, monthly budget, type of loading needed, office square footage, amount of power, etc. Those are just a few to start with. Knowing how to lease a warehouse is crucial to your success because typically speaking, the average term of a lease for a smaller unit is a minimum two years, so your business will be stuck in that location for at least 24 months.
How to Start.
Location, Location, Location
As corny as it is, the first thing you will need to decide is deciding your location. Location is crucial because you want to be near your customers and near major throughways, such as freeways and highways so that you can send and receive goods quickly.
Square Footage Requirement
Once you have your location figured out, you will need to decide how much square footage you will need to run your business. You want to find something that fits your current needs, while having adequate room to expand into. Typically at the end of a lease term, tenant's usually try to stay in the same location if the space suits them well, and if not, they will usually find a new location with more space. For example, if a 5,000 square foot user needed additional space, they would most likely take a jump up into a 10,000 square foot warehouse building.
The next thing you need to figure out when you are trying to lease an industrial warehouse is deciding what type of loading is necessary. Is ground level loading adequate? Is dock high needed? Do you need a freestanding building so you have more room for loading? Loading is crucial for your day to day operations, so you need to know what is necessary to run your operations smoothly and efficiently.
Power plays a critical role especially for manufacturers. When you are trying to lease a warehouse you must know how much power you need and whether or not the current building you are looking at can supply that power. We always recommend hiring an electrician to come out to measure the power before you agree to lease the building. We recommend this because it would be a terrible situation if you signed a lease and find out that you now can't even use it for your business.
Once you have figured out the core essential items you need in your potential warehouse building, I recommend that you find a commercial real estate broker that is working in your target area. Hiring a broker is no cost to you as the tenant because the landlord pays the broker a commission. Brokers know the market better than anyone else because they know what is available, they know what similar buildings are going for, and they know how to put together a deal that could save you time and money.
Picking a broker is a critical part to your success when leasing an industrial warehouse. You don't want to pick just any broker. You want the broker that knows your area, knows the market prices, knows the players, and knows the supply and demand of the market. You want to make sure that your broker is putting in his or her time doing their homework to put you in the best possible situation. For example, you don't want to pick a broker that works in the San Diego market to help you lease a building out in Santa Fe Springs. You also do not want a residential broker helping you lease a commercial building because commercial real estate and residential real estate are two completely different animals.
What Owners Look At.
Once you have found the best possible building for your business, your broker will put together an offer in which it will be delivered to the warehouse owner. If the terms of the offer are acceptable, the owner will require some information from you before leases are prepared and signed. Each owner has different requirements, however typically owners will require financial statements from the previous year (balance sheet and income statement), the previous two years' tax returns for your business, and for smaller units, they might require a credit report.
If your financials are acceptable to the owner, you will be required to typically supply two things upon lease execution. You will need to have proof of liability insurance and a check for first month's rent and the required security deposit.
When you are trying to figure out how to lease an industrial warehouse, you need to have a few key things in mind; size requirement, loading needs, location, and power needs. There are other factors that play a role, however those four items play a major role in any search for an industrial warehouse. My advice would be to figure out what you need and call a brokerage firm that can help you narrow down the search. Find a broker that is like-minded and that knows their craft.
I would be more than happy to help you find your first or next possible industrial warehouse if you are searching in the Los Angeles Mid-Counties region. Please feel free to reach out to our email address, firstname.lastname@example.org , or give me a call (714) 521-0800.
-Kevin Romano, Senior Associate, INCO Commercial Brokerage