Commercial Real Estate

Frequently Asked Questions About Commercial Real Estate

The field of commercial real estate is very interesting and important for a variety of  reasons. Naturally, business owners are interested in this type of real estate, whether for purchase or for lease. Furthermore, this field of real estate is also very interesting for property investors, including those who are part of a commercial real estate investment trust. However, it is also one that raises a lot of questions. Let’s take a look at some of the most important questions around.

1. Can I Change My Leased Space, and Who Is Responsible for the Cost?

Your lease contract will explain what type of changes you can make. As a rule of thumb, if you want to make changes to the building itself, such as distributing power, installing racks, moving walls, painting, and so on, you will not be restricted, subject to the construction code, planning restrictions, and approval from the owner.

Is there planning permission for the current use of the premises and will that cover your planned use? If not, you will need to apply for a change of use of planning permission. Also does the building comply with all relevant laws? For example, if the owner has carried out building works to the premises (such as an extension) – did they have planning permission and were they carried out in accordance with building control?

If you want to change the structural elements of the building, however, things may be slightly more complex.

There are three options available in terms of payment:

  • The owner pays all of it, which is very rare.
  • You pay for all of it, which is equally, if not more rare.
  • You each pay for certain elements of the refurbishment.

Just how much you will pay, in other words, will depend on your negotiation skills.

2. What Are Commercial Agents and How Do They Get Paid?

There are two types of brokers: leasing agents and tenant brokers (also known as listing agents and tenant reps). They both work on commission.

When you sign a lease, the listing agent will receive a commission of 4 percent to 6 percent of the lease’s value. The listing agent will then split that commission with your tenant rep. This split is often done on a 50/50 basis, though not always. If you sign a five-year lease for 2,000 square feet at $30 a square foot per year, a commission of 5 percent would equal $15,000. If the listing agent agreed to a commission split of 50 percent with the tenant rep, your tenant rep would receive $7,500.

Either way, therefore, you will not be out of pocket for the cost of the commercial agent. Rather, these costs are covered by the property owner.

3. How Has the World of Commercial Real Estate Leasing Changed?

There have been huge changes over the past few decades in terms of commercial real estate leases. One of the greatest changes is that everything is now done online. On the one hand, this has made it easier for those looking for a property to find one. On the other hand, it has brought about new challenges as people are less likely to work with the appropriate professionals, thinking they can do it all themselves online.

4. How Do I Know the Value of the Building?

A lot of factors will determine the value of your building, including availability and whether the market is trending down or up. If you own a commercial property, this can be an important issue, as you can’t to make sure you earn as much as possible. This is why improving your property as much as possible is always a good idea.

5. What Is the Current Market Like?

The current commercial real estate market in Orange County is behaving strangely. There has been a significant increase in demand, as well as price appreciation. Yet, people continue to expect low prices, which is no longer the case.

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