As soon as Americans realized that COVID-19 was a serious pandemic that would affect every aspect of life, small business owners knew they needed to find creative approaches to generating revenue and lowering overhead costs.
You may have noticed a significant gap between how small businesses survived, thrived, or died during the pandemic. The Paycheck Protection Program, stimulus checks, and other government projects designed to stimulate the economy helped some businesses experience banner years as well as the current positive sign with the stock market being up and interest rates being low. You may not have had the same experience, though, if you own a restaurant or small retail store.
While it’s impossible to offer general commercial real estate advice that will suit everyone in the Chesapeake Corridor, there are some points you should pay attention to as more people get vaccinated and the economy — hopefully — moves into a period of recovery.
You can access the webinar replay here to listen to the whole conversation. Below, we’ve summarized a few of the key takeaways from the discussion:
The Chesapeake Corridor May Not Have Enough Commercial Real Estate
Some real estate brokers report that they have faced challenges finding commercial real estate for their small business clients, particularly in the retail and medical industries. Moving into a new space largely seems to depend on your business’s needs. Industrial and large commercial spaces are difficult to find, and they have high prices.
If you take a creative approach to invest in real estate, you might recognize this as an opportunity to get involved in development projects. That could work in your favor. Consider, however, that development projects typically take two to three years to complete. It’s nearly impossible to know where the commercial real estate market will be then.
Know Your Business’s Commercial Real Estate Needs During Recovery and Beyond
Small business owners have a lot of questions to answer before they commit to new commercial real estate options.
Some of the questions to ask include:
- Realistically, how long will we stay in this space?
- Does your business plan involve expanding within five or 10 years?
- Do you want to grow your business to serve other geographic areas?
- How much capital can you spend on a new location and updating the space to meet your requirements?
- Does your current space meet your IT infrastructure needs?
- Do you plan to switch to a hybrid model that lets some employees work remotely?
How you answer these questions should influence your commercial real estate choice.
Some Small Business Owners Could Renegotiate Their Lease Agreements
Several commercial real estate brokers say that small and mid-size offices are having a hard time keeping tenants. The buildings that once held big box stores, however, are getting converted into order fulfillment centers. Don’t expect them to make great options unless you have a similar business plan.
If you notice a lot of tenants leaving your building, you might want to approach the owner about renegotiating your lease agreement. Assuming that you have a great credit history and always pay on time, you might get a lower rate or other perks that the owner hopes will keep you as a tenant.
Don’t negotiate too hard, though. A commercial real estate owner who suffered losses during 2020 might not have the ability to concede much.
The Time You Plan to Spend in a Space Should Influence Your Decision
If you plan to keep a lease for less than five years, it probably makes sense to lease. Keep in mind, though, that you may want to renegotiate with the owner to determine who will pay for upgrades. The longer you agree to lease the real estate, the more willing most owners are to spend money now.
Don’t get too far ahead of yourself, however. You can’t predict how the commercial real estate market will evolve over the next decade, let alone beyond that. Make decisions based on the business plans and real estate information you have now. If the space works for you, it might not matter how much the value changes over time.
Some Small Businesses Could Benefit From Buying Commercial Real Estate
If you think that a building or office space will suit your needs for 10 years or longer, consider buying it. Buying commercial real estate isn’t always easy since you need a lot of capital just to secure a loan. In return, though, you can lock in your monthly expenses to avoid growing lease prices. Consider seeking the advice of a financial advisor to really understand what the tax benefits are and are not in our current environment.
Even if you move to a new location, the CRE could become an investment property for your business.
Explore Second-Generation Spaces to Save Money
Small business owners worried about the escalating cost of leasing property should look at second-generation spaces. Second-generation spaces already come with some of the equipment and structures you need to run your business. That means you and the property owner don’t have to spend nearly as much money preparing the real estate for your business.
Second-generation space can also lower your overhead, but it won’t fit every business’s needs. If it’s a good match for your business, you and the owner can recognize the mutual advantage of reaching a fair deal.
Contact Brady Renner CPAs and Business Consultants
Small business owners need to make unique commercial real estate choices that align with their short-term and long-term plans. If you’re interested in getting personalized insight from a team of experts working in the Chesapeake Corridor, send an inquiry to Brady Renner CPAs. We will return your message shortly to give you an answer or schedule a meeting.