Whether you're an e-commerce giant or a small business needing additional storage, understanding the cost of renting a warehouse is crucial. This blog provides an overview of:
- The average rental rates across the top 30 U.S. metros
- What’s included in your lease rate
- Different lease types and the most common types used in the industrial sector, and
- The benefits of tenant-only commercial real estate representation
What Influences the Cost of Renting a Warehouse?
Several factors influence the cost of renting a warehouse:
- Location: Warehouses in urban areas or near major transportation hubs generally cost more than those in suburban or rural locations.
- Size: Larger spaces typically come with a lower monthly rate than smaller warehouses
- Build Out/Tenant Improvements: The more complex and tenant-specific the space needs to be, the greater the cost (i.e. if you need a power upgrade or better distribution, substantial office build-out, floor drainage, etc.).
- Lease Duration: Longer leases often offer lower monthly rates and/or better landlord concessions that can reduce the overall effective rate.
- Market Demand: High demand in certain areas can drive up rental prices.
What is the Average Cost to Rent a Warehouse?
Understanding average rental rates can provide a baseline for your next commercial real estate negotiation:
- National Average: According to CommecialEdge as of June 2024, the cost of industrial space averages at about $8.04/SF. Certain metros may have higher or lower rates.
(Source: CoStar August 2024)
What is Included in an Industrial Lease?
An industrial lease typically includes several key components:
- Base Rent: The primary cost of renting the space.
- Operating Expenses:
- Common Area Maintenance (CAM) Fees: Costs associated with maintaining shared areas within the industrial park or complex.
- Property Taxes: Often passed on to tenants, either fully or partially.
- Insurance: Landlord-provided property insurance, with tenants often required to carry their own liability insurance.
Other possible inclusions in an industrial lease may be:
- Utilities: Electricity, water, and other utilities may be separately metered for the Tenant’s space.
- Repairs and Maintenance: Responsibility for these costs can vary; some leases make tenants responsible for interior repairs, while landlords handle exterior maintenance.
- Security and Access Control: Costs related to security systems or controlled access might be included in the lease agreement.
What Are the Different Lease Types?
There are three main lease types in the commercial real estate industry:
- Gross Lease
- Definition: Tenant pays a single lump sum that covers rent and all operating expenses.
- Pros and Cons: Easy for budgeting but often higher monthly costs as landlords cushion for variable expenses.
- Net Lease
- Single Net Lease: Tenant pays base rent plus property taxes.
- Double Net Lease: Tenant pays base rent, property taxes, and insurance.
- Triple Net Lease (NNN): Tenant covers base rent, property taxes, insurance, and maintenance costs.
- Pros and Cons: Lower base rent but additional costs can fluctuate, offering landlords a predictable income while shifting risk to tenants.
- Modified Gross Lease
- Definition: A hybrid lease where the tenant and landlord share operating expenses. Each lease is different but usually one or two expenses are not included in the rate.
- Pros and Cons: Balance between simplicity and cost-sharing but the tenant is likely paying a slight premium to account for varying costs to the landlord.
What is the Typical Lease Type for Industrial Properties or Warehouses?
Triple Net Leases (NNN), where the tenant pays base rent, property taxes, insurance and maintenance costs are common in the industrial sector due to their clear delineation of responsibilities. NNN leases offer transparency in costs and maintenance responsibilities, making them favorable for both landlords and tenants.
What is Tenant-Only Commercial Real Estate Representation?
Tenant-only representation involves a broker or agent who exclusively represents the tenant’s interests, as opposed to dual representation where an agent represents both landlords and tenants, creating a conflict of interest.
If you’re deciding between hiring a tenant-only broker or negotiating the terms yourself, keep in mind, brokerage fees are typically included in the rental rate. The tenant will pay the fee over the life of their lease whether they choose to have representation or not. It is in the tenant’s best interest to hire a tenant-only broker because they can provide:
- Conflict of Interest Avoidance: Pure focus on tenant's needs ensures unbiased advice.
- Expertise and Market Knowledge: Brokers have access to market data and trends that can influence lease negotiations.
- Negotiation Power: With the right strategy, experienced representatives can create immense negotiating leverage, often leading to better terms and lower costs.
Selecting the Right Representation
Choosing the right tenant broker is crucial to your finances and overall workplace strategy. Here are three questions we recommend asking before you hire your next commercial real estate broker.
Conclusion
Renting a warehouse involves various considerations, from understanding cost factors and lease inclusions to choosing the right lease type and representation. By being informed, tenants can make strategic decisions that benefit their businesses. For personalized advice on your current commercial real estate strategy and a free lease review, please visit Keyser.com/lease.