It has been our experience that the main reason a tanning salon tenant ends up leasing the wrong amount of square footage is due to availability … or lack thereof.
So often, retail tenants come to The Lease Coach stating that they are not making any money because their rent is too high. Sometimes, this is a true statement; but, more often than not, the tenant has simply leased too much square footage to be profitable.
We remember consulting with a client who had leased 5,000 square feet of space, but couldn’t afford to pay the rent. When we checked with neighboring tenants, it turned out our client was actually paying less per square foot than any other tenant in the commercial property. It wasn’t the rental rate per square foot that was killing his business, but the amount of space he had been talked into leasing by the landlord’s representative. We regularly see this scenario … leasing representatives and real estate agents, typically, receive a commission from the landlord for signed lease deals (the incentive increases with a tenant signing for a longer term, agreeing to pay a higher rent or leasing more space); however, the unknowing tenant often signs the lease agreement and becomes legally bound to the terms. Additionally, in most cases, you will also be paying operating costs or CAM (Common Area Maintenance) fees based on a per-square-foot basis.
Occasionally, we deal with the reverse of this scenario. A commercial tenant told us his rental space was too small and that if he could expand the business, he could generate more revenue. We negotiated for this tenant to lease the adjacent rental space (which meant relocating the neighboring tenant) and he achieved his goal. Landlords, generally, prefer to work with a tenant who wants to expand versus one who needs to downsize.
It has been our experience that the main reason a tanning salon tenant ends up leasing the wrong amount of square footage is due to availability … or lack thereof. If you need about 2,000 square feet for your salon, but the only two retail spaces remaining available for lease are smaller and larger, you will have a dilemma. A smaller space often has less frontage as well, giving you less storefront exposure – which is critical for the success of a retail operation.
When choosing between rental spaces that are modestly too big or too small for their needs, tanning salon tenants should almost always decide which space is in the better location. With adjacent and very comparable units, we would normally advise the tenant to be more conservative and lease the smaller location. Business owners who tell us their location is too small are usually profiting, but want to expand to increase their sales. Whereas tenants who tell us their location is too big often want to downsize to reduce monthly rent payments as a means of improving their bottom line.
Consider also the functional shape of the premises for your business. In one situation, the landlord was expanding his strip mall claiming that only one CRU (Commercial Retail Unit) was left. Unfortunately, this unit housed a large utility room in the back, making that area unusable for almost any tenant. Since the expansion portion of the project was only in the construction phase, we suspected the landlord still had time to move other newly-interested tenants around and suggested to the tenant we walk away from the deal as a negotiating strategy. As expected, within a few days, the landlord reconsidered his position and predictably came up with a much better location for the tenant.
When it comes to leasing commercial space, choose wisely. If the space is too large, you may not only be paying too much rent, you may not have enough tanning units to fill it (therefore making your salon appear emptier and less enticing to customers). If you have too little space, you may be “squeezed in” and maneuvering around may become difficult.
For a copy of our free CD, Leasing Do’s & Don’ts for Commercial Tenants, please email your request to dalewillerton@theleasecoach.com.
