The coronavirus pandemic threw the commercial real-estate world into disarray. Employees and business owners emptied out their offices, hotels took a big pause, and malls have had significant difficulty keeping and attracting tenants. This disruption has also created a surge in e-commerce, which, in turn, has fueled a large demand for warehouse and industrial space. The warehouse and industrial sectors attract a wide range of businesses and e-commerce players and is now coveted by traditional “brick and mortar” companies who seek to expand into the online arena.
Whether you are a company needing a warehouse to support your e-commerce supply chain, or you are starting the next “ghost restaurant” in an industrial area, knowing how warehouse and industrial leases work is now of critical importance. Below are four “key” terms to consider before signing a lease for warehouse or industrial space:
1. Net Leases and Lengthier Terms
Traditionally, warehouse and industrial leases are set for longer terms than office, restaurant, and other commercial leasing sectors. Additionally, warehouse and industrial leases are usually net leases, which make them easier for landlords and owners to manage, as the responsibility for maintenance, operational costs, and insurance is placed on the tenant.
Parking is always an important consideration for commercial leases. But, compared to office, restaurant, and retail sectors, warehouse and industrial tenants usually require less parking spots since industrial and warehouse tenants typically have less employees than the other sectors. If you need additional parking spaces, be sure to address this before signing your lease.
3. Expansion Rights
If your warehouse or industrial space will be your business headquarters, you should consider future space requirements before signing a lease. Consider the potential need to expand your operations and build expansion rights into your lease. A tenant with expansion rights will have priority over potential tenants if expansion rights are built into your lease.
4. Upfront Due Diligence
Each warehouse and industrial tenant will have unique requirements and needs. It is therefore imperative to determine early on whether the building can meet your anticipated needs. For example, is the HVAC system robust enough to keep your employees comfortable and your tools the right temperature for optimal operation? Do you need storage and space for freezing food? What about electricity – is there enough to power your operations? It is imperative to take time to perform due diligence before signing your lease.
As with most commercial leases, a solid “use” provision is of critical importance. The bottom line is that you need a use clause broad enough to cover all of the products and operations you may have in the future.
The warehouse and industrial real estate sector is now solidifying its position as commercial real estate’s most popular, and most needed, category. Demand for this popular sector will likely continue into 2021 so it is now imperative that tenants have a good understanding of their leases. If you have any legal questions about warehouse and industrial leases, feel free to email me at [email protected] or call 602-533-2840.
Patrick R. MacQueen is a founder of MacQueen & Gottlieb, PLC.