Leasing Warehouse Space? Here's Your Top Considerations as a Tenant

In this article, you’ll discover:

• Essential factors to consider when leasing warehouse space.
• How technological advancements impact costs and property value.
• Key elements of effective warehouse space requirements.
• The significance of location for optimizing logistics and cost efficiency.

Identifying the best approach to leasing warehouse space is a critical responsibility for the decision-makers of corporate real estate portfolios. In this complex arena, finding the right warehouse space is a carefully orchestrated juggling act, where multiple priorities demand meticulous attention.

From optimizing storage space to ensuring facilities align with your operational needs, we will delve into the essential factors and strategies that underpin the quest for the perfect warehouse, providing valuable insights for tenants navigating this pivotal aspect of corporate real estate management.

Determine Your Commercial Industrial Space Needs

Warehouse leasing in the last few years has been largely dominated by modern, high-quality facilities that integrate advanced technologies to optimize efficiency and sustainability. Corporate tenants have new priorities across the board and the warehouse space of the past will no longer cut it as rapid technological evolution is domineering the demand for manufacturing space.

The standard for industrial spaces has long surpassed just accommodating storage needs. Tenants want to ensure their warehouse spaces are fully equipped with the features that will put them on top of their competition. And these modern warehouse properties are dominating the modern leasing market, accounting for 68.5% of signed industrial leases in Q1 of 2023.

So, when you are leasing warehouse space, you need to consider how your perfect space would stand the test of time. Warehouse leases are long term; therefore, you want to balance a property's potential for technological adaption along with other key features like cost and square footage or risk getting outdated. 

Calculating the Cost of Your Warehouse 

Cost will be highly intertwined with a warehouse's technological capability. There is a squeeze for the right properties as every tenant puts emphasis on premium, technologically capable facilities.

And this emphasis on Class A properties has had a direct effect on average rental rates in the market. As anticipated, the average asking rates for leased warehouse spaces have experienced a notable increase because while there has been a dip in overall leasing activity, the higher concentration of leases being signed for Class A properties has driven up the average rental prices per square foot observed in the market.

Beyond property cost, there's a lot of other factors to get right when dealing with warehouse rentals. From getting the right lease terms to the best timeline for move in, becoming prepared is the only option you have to negotiate your optimal deal. Enroll in the free course to learn how to find the best warehouse for the best price.

So, renting warehouse space is getting more expensive, well, it is if you're still utilizing the landlord's broker. Employing the services of a True Tenant Rep™ is the only surefire way to maximize the competition among landlords for your tenancy, boost your leverage, and cut your costs. 

The factors that are going to be first-and-foremost when identifying your leverage in negotiating a base rent include:

• Supply and demand
• What market you’re in geographically
• Age of your warehouse vs average age of warehouses around you
• The creditworthiness of your tenancy
• How much construction is in the pipeline
• When construction is expected to hit the market
• How much time is on your lease
• How much longer you want your lease to be

When it comes to the total cost of occupancy, it's never just rent. There are numerous other considerations that may be added to your capital expenditures. So, when attempting to cut costs, start by negotiating the factor you can control, base rent. Because other expenses incurred can include CAM charges, rent escalations, property taxes, utilities, service contracts, and estimated operating expenses.

Many industrial leases are triple net, and as such the tenant is expected to pay the property taxes, operating expenses, building insurance, and maintenance in addition to rent and utilities. With a triple net lease, lease negotiations are limited to the costs your landlord is in direct control of.  

Triple net leases make it especially critical to consider the age of the property you are leasing. Older buildings are more likely to demand maintenance or repairs. If the burden is on you to cover those costs, they can quickly add up, becoming extremely expensive. So, when negotiating, never forget to consider the total prospective value of the lease beyond base rent.

Your Industrial Space Requirements

When embarking on the search for the perfect warehouse location, it's paramount to evaluate your business' square footage requirements.

To begin, you should determine the square feet needed for efficient product storage, ensuring it aligns with your current inventory and future growth projections. The space should not only accommodate your product storage but also provide room for essential facilities like office space, break rooms, and bathrooms.

Moreover, the cubic space requirements can't be overlooked. A warehouse's ceiling height, particularly the under-steel ceiling height, plays a pivotal role in accommodating proper racking storage systems. This not only maximizes storage space but also optimizes the existing floor plan.

Efficient racking, often considered the backbone of a warehouse, must strike the perfect balance between square footage and vertical space. It should make the most of the available square feet while meeting your storage and inventory management needs. Compatibility with equipment and ease of access to stored items are additional factors to consider in your quest for the ideal warehouse space. Some companies are even taking on multi-tiered facilities to increase their efficiency. Read Will Multi-story Warehouses Become the Norm?

There are other specifics you can’t get wrong when it comes to your facilities. Carefully examine the loading dock to ensure that your trucks can pull up properly and that your shipments can be loaded and unloaded with ease. Also take into consideration how easy it is to maneuver large vehicles in the parking lot and driveway areas and how accessible the warehouse location is from major highways. You want to make sure your property has at least 135 feet of marshaling room. 

The Location of Your Commercial Property

Location is key when it comes to picking the ideal warehouse. Your warehouse facility should be close to major transportation routes so that you can receive goods and ship products quickly and efficiently. Shipping and logistics availability is critical to a property's ease of ingress and egress especially since customers expect faster turn over times when dealing with deliveries.

Prologis estimated that transportation is the most significant supply chain cost, comprising roughly 50 percent of the tenant’s logistics cost.

And in context, warehousing leasing makes up just 5 percent of the total logistics costs. So, a centrally located property can significantly reduce trucking or other shipping costs. Access is key. Location can also be one of the biggest determinants of base warehouse rental prices. Read more about What the Right Location is for Your Warehouse (6 Considerations).

Secure Your Optimal Warehouse

Finding the optimal warehouse space involves a meticulous assessment of various critical factors. Evaluating square footage for efficient storage, considering industrial space requirements, and scrutinizing lease rates are fundamental steps in this process.

Beyond the sheer size, it's essential to account for access, ensuring that the warehouse layout and vertical space are conducive to easy retrieval of inventory. Additionally, managing warehouse costs is paramount to ensure the chosen space aligns with your budget constraints. By striking the right balance between square feet, industrial space needs, lease rates, and cost management, you can find the perfect warehouse space that not only meets your immediate requirements but also sets the stage for streamlined operations and future growth. Don't risk losing your optimal industrial property, enroll in the free course below.