Small Retail Space for Rent: A Business Owner's Guide
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Your choice of location, as a retail business owner, makes a significant difference in the success of your operation: General location, proximity to customers, and nearby stores all matter when you set out to find the right small retail space for rent. And yes, even a small retail space, with the right characteristics, can yield great profits.
Here, we'll cover what you need to know about finding and selecting the perfect small retail space for rent. We'll cover typical retail rental sizes, retail lease types, and other tips for leasing retail space.
Let's get started.
Should I Buy or Rent Retail Space?
The first question any retail owner needs to ask is whether they'll want to buy or rent their retail space. Both options have pros and cons, so weigh this decision carefully.
The advantages of buying include having complete control and freedom over your small retail space. You can change the floor layout, add new structures/fixtures, and modify elements however you wish.
The storefront itself will be a nice capital asset for your business that can appreciate in value. The main downside of buying a retail store is the hassle of management and upkeep and the relative illiquidity of physical real estate.
Leasing retail property, on the other hand, gives you flexibility and mobility. You can usually break the lease when you want to, and you won't have to worry about selling the property if you want to leave. The main downside is you have less control over what you can and can't do with the space.
What Is the Standard Size of a Retail Shop?
The average size of a retail shop varies significantly depending on the kind of retail store we're talking about. For example, the average grocery store is about 40,000 square feet, while the typical convenience store clocks in at about 3,420 square feet. Department stores have large sizes, with the average Nordstrom size at 140,000 square feet.
There really is no ‘standard size' for a retail shop. The right size depends entirely on your business model, product inventory, and intended customer base. As a general rule of thumb, retail businesses should budget to spend about 10% of their gross sales per square foot on rent.
How Deep Should a Retail Space Be?
For strip centers and retail centers, the ideal depth for retail space is anywhere between 40 and 60 feet. Anything deeper than 70 feet will likely be too deep and make the ensuing store space feel too narrow horizontally.
How Much Does It Cost to Rent Retail Space?
According to data from Statista, the average small retail space for rent in the US in 2023 costs $22.96 per square foot. However, average retail rents vary significantly, with smaller cities generally having more affordable rents.
For example, average asking rates for retail space for rent in San Francisco are about $42 per square foot, while average rental rates for retail space in Houston are about $22 per square foot.
What's the Most Common Lease for a Retail Property?
The most common kinds of retail commercial leases are net leases and percentage leases.
In a net lease, the tenant pays base rent and covers other incidental costs of running the property. Exact incidental costs depend on the kind of net lease:
- In a single net lease, the tenant pays rent and property taxes.
- In a double-net lease, the tenant pays rent, property taxes, and utilities.
- In a triple net (NNN) lease, the tenant pays rent, property taxes, insurance, and utilities.
With a percentage lease, the tenant pays a base rent in addition to a fixed percentage of business profits. Generally, percentage leases have a profit threshold after which the tenant splits a portion of their income with the landlord. This kind of lease lets tenants keep rental costs low until they're more successful.
What's the Most Popular Commercial Lease?
Overall, we'd say the most popular commercial retail lease (and the one you're most likely to encounter) is a standard, five-to-ten-year NNN lease. Commercial real estate lease terms are usually longer than residential leases because landlords are more likely to recoup their investment with stable tenancy.
Regardless of the kind of lease you have, you'll most likely need an Employer Identification Number (EIN), business license, or other type of equivalent documentation. Most landlords will also require proof of insurance and industry-relevant licensure.
Tips for Leasing Small Retail Space
Renting commercial property for the first time can be challenging. Here are some expert tips to make finding small retail space for rent easier.
#1 – Work With an Agent
Regardless of what kind of retail business you run, we highly recommend working with a commercial real estate broker. Real estate brokers can help you find the right property for your business that has desirable real estate financials.
#2 – Ask About Co-Tenancy Clauses
Retail store owners should also ask about co-tenancy clauses. A co-tenancy clause can provide rent relief or allow you to break the lease if nearby store occupancy falls below a certain threshold. This kind of clause protects tenants from being trapped in a commercial lease in a failing retail ecosystem.
#3 – Negotiate Concessions
When negotiating a lease, you should also ask about lease concessions. For example, rent abatement is a common lease concession where the landlord provides free or discounted rent for a limited period. Landlords will sometimes offer lease concessions in exchange for a longer lease term.
#4 – Renegotiate Terms at End of Lease
The end of a commercial lease is a good time to reassess your business and see if your commercial lease is still meeting your needs. Renegotiating your lease might allow you to change lease terms to be more in your favor, whether it's through reduced rental payments, reassessing cure periods, or asking for a tenant improvement allowance.
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