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How to Find Retail Space for Rent: The Basics

Published: 10-03-23 Category: Leasing/Renting

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Finding the most ideal retail space for rent often spells the difference between successful operations and struggling shops. A shabby, unkempt retail space will damage your chances of attracting and retaining customers. Despite the time commitment required, exercising due diligence in choosing retail space will serve you well in the long run.

Here, we'll cover the basics that business owners need to know when trying to find retail space for rent. We'll discuss the differences between commercial and residential leases, retail space rents, key retail lease terms, working with an agent, and more.

Let's get started.

Commercial vs. Residential Leases

If you're renting retail space for your business, then you'll have to sign a commercial lease. Leasing commercial property differs from leasing residential property in several ways, and commercial leases often have notable differences from their residential counterparts.

#1 – Length of Lease

Residential leases are usually on a year-to-year or monthly basis. In contrast, most commercial leases are between three and five years. A common commercial lease arrangement is a “5 and 5,” which is a five-year lease with the option to renew for an additional five years at the end.

#2 – Payment Responsibilities

With residential leases, the tenant pays the landlord a fixed amount of monthly rent plus utilities. With commercial leases, the tenant might also be responsible for paying property taxes, insurance, and building maintenance.

For instance, in a triple net (NNN) lease, the tenant covers rent, property taxes, insurance, and building management/upkeep.

#3 – Legal Protections

Residential tenants have many more legal protections than commercial. This is due to the many regulations surrounding residential housing, regulations that the commercial sector currently lacks.

For instance, commercial landlords can strictly define the hours of property use and stipulate that the tenant covers certain building expenses.

#4 – Rent Control

Some cities have rent control laws limiting how much residential landlords can raise monthly rent. Commercial leases have no such restrictions, and commercial landlords can raise rents as much and whenever they want, as long as it doesn't violate any agreed-upon terms they've agreed to in their lease.

Key Retail Lease Terms

Lease language can often confuse first-time commercial renters. Below are some common retail lease terms and what they mean.

The lease term is the length of the lease and how long the tenant wants to rent the space.
Annual rent is the total amount of rent you'll pay for the space. You can calculate monthly rent by dividing annual rent by 12.
Landlords might request a security deposit to cover expenses if the tenant falls behind on payments. Landlords return the deposit to tenants at the end of the lease.
A use clause defines when and how the tenant can use the property. Landlords might restrict the types of business activities that take place in the space.
Lease concessions are reductions or waivers landlords can offer to attract renters. Examples of lease concessions include rent abatement and tenant improvement allowances.
Subleasing refers to a tenant leasing rented space to a third party. Businesses may want to sublease space to generate extra revenue during economic downturns or slow cash flow periods.
A cure period is when a tenant must rectify lease violations before incurring penalties.

Commercial leases can include whatever terms and clauses the two parties want. The legal flexibility of commercial leases is one reason why you should seriously look into having an attorney on your real estate team.

How Much Rent Should I Pay for Retail Space?

How to Find Retail Space for Rent: The Basics

No fixed rule or formula determines exactly how much a business can afford to pay for rent. It depends on other business expenses, and different industries have different standards.

One way to conceptualize rent burden is your rent-to-revenue ratio. To get this figure, divide your annual rent by your expected annual revenue. For example, if your annual rent costs $30,000 and you expect to generate $300,000 this year, your rent-to-revenue ratio is 10%.

Ideal rent-to-revenue percentages differ depending on your niche, but a good ratio for retail businesses is between 5% and 10%. It ultimately comes down to how comfortable you are with your business revenue and margins.

What's the Average Commercial Rent in the US?

Commercial rents in the US vary by property type, such as office, industrial, and retail, so it's hard to give an average figure. Rents depend on a wide range of factors, including location, building amenities, and the surrounding property market.

How Much Is Average Rent for Retail Space?

According to data from Statista, average retail rents in the US were at about $23 per square foot as of the end of 2022, but average rents can vary significantly by state. For example, average retail space rent in San Francisco is $42.40 per square foot—almost twice as much as the national average.

Tips for Finding Retail Space for Rent

To help you out, we put together some additional tips to help you find retail space for rent and get a good deal.

Work with a real estate broker. Commercial real estate brokers work with tenants to find space and land better lease deals. They can also help you avoid common pitfalls of leasing commercial property.
Be sure you have access to your employment identification number (EIN) and other business documentation and permits when signing a lease.
Don't just pick the spot with the cheapest rent. You also need to consider location, space amenities, and nearby competitors when looking at the financials of a retail spot.
Consider including a renegotiation clause that allows you to reassess the terms of the agreement should your business circumstances change.
Ask other business owners and around professional circles to find retail space for rent that might not be on public listings.

The trick to finding a good retail spot is to explore all of your options and conduct thorough due diligence before signing on the dotted line.

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