Debunking Commercial Real Estate Myths and Misconceptions

In this article, you'll learn:

• Why leasing commercial spaces is far more complex than renting apartments.
• How buying vs. leasing depends on specific business needs and growth.
• Leasing may not always be cheaper than buying due to various hidden costs.
• The crucial role of tenant rep brokers in negotiating leases beyond legal advice.

In an age when misinformation exists in abundance, we thought it would be helpful to address a few popular myths about commercial real estate. Hopefully, setting the record straight on these topics will help corporate space users make better decisions regarding their real estate plans.

Myth 1: Leasing Commercial Space is Just Like Renting an Apartment.

Assuming commercial and residential leases are the same can create a dangerous sense of confidence in the inexperienced. Commercial real estate leasing can get quite complex, whereas renting an apartment or house is a pretty straightforward process.

Furthermore, nearly every commercial real estate deal is subject to extensive negotiations between the landlord and the tenant. Residential leases, in contrast, are pretty standard and rarely get modified to accommodate specific tenant requests.

The takeaway: Renting a house does not make one an expert in commercial real estate leasing.

Myth 2: It is Much Better to Buy Than to Lease.

While this may be true in many situations, it is incorrect to assume that purchasing your office or warehouse space is always better. Each business has unique requirements and growth plans that need to be used as a guideline to formulate a long-term real estate strategy.

For example, company capital may be better spent on expanding your operations in additional markets, instead of investing in real estate assets in one location. Even though commercial real estate is considered a pretty secure investment, you may end up losing money if you are forced to dispose of the property in a rush or in a bearish real estate market.

The takeaway: Consider purchasing real estate only if you intend to operate in the market long term, and if the property has the potential to accommodate future growth.

Myth 3: It is Cheaper to Lease than to Buy.

In a direct contradiction to the previous myth, some organizations assume it is always cheaper to lease than to buy real estate. After all, leasing does not require a huge upfront investment like a down payment. On the contrary, leasing office or warehouse space can be quite costly depending on your company’s situation. For example, poor credit may require a huge deposit. Also, building out your space out-of-pocket can become quite expensive; not to mention, if you choose to move out when your lease is up, you have no way of recouping the money spent on tenant improvements. Lastly, monthly rent payments are oftentimes higher than paying off a mortgage.

The takeaway: Companies should take into consideration their financial situation, future growth plans, and overall market conditions when deciding whether to lease or buy.

Myth 4: I Only Need My Attorney to Negotiate a Good Lease.

Some business owners and CEOs mistakenly think that their attorney or in-house counsel will not only protect them legally in a real estate transaction but can also negotiate the most favorable lease terms. While attorneys should certainly be involved in the leasing process, they shouldn’t be your only representative in any real estate transaction.

Namely, lawyers don’t know much about rental and vacancy rates, space planning and construction, and a number of other aspects of a lease transaction. Instead, you need to form a team of experts and let each professional be in charge of their area of expertise.

The takeaway: Leave the legal stuff to your attorney, but the lease negotiation to your tenant rep, and the space planning to your interior designer.

Myth 5: Hiring a Tenant Rep Broker is Expensive and Unnecessary.

One of our favorite myths to debunk is the belief that hiring a tenant rep broker to represent you in your search for space is an unnecessary expense. Well, here’s the good news. Hiring a tenant representative will cost you nothing! Even though they work for you as the tenant, tenant rep brokers are paid for their services by the landlord. They can help you understand the local market, find the best prospective properties, lead the negotiations, close the deal, dispose of unused space, and a lot more.

The takeaway: Find a tenant rep that understands your business and use their wealth of knowledge to optimize and guide your real estate strategy.

Myth 6: Any Real Estate Professional Can Give You Good Advice.

American poet Carl Sandburg famously said, “Beware of advice—even this.” Just because someone has a professional demeanor or is eager to help you with your real estate search, does not mean they know what they are doing or have your best interest in mind. For example, you will probably meet a number of real estate brokers who would be happy to help you find a property to lease, however, they may conveniently forget to mention that they also represent some landlords, and are preferential to showing their properties to every tenant.

The takeaway: Direct all unsolicited advice and inquiries to your tenant rep broker in order to avoid misleading information and bad deals.

Don’t forget to reach out to one of our experienced tenant reps if you encounter any other questionable information or need help navigating the world of commercial real estate.

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