Vacant 2nd floor Commercial retail/office Space - HELP!

[Sovat C.]

Need help or some suggestions. I purchased a small retail space 3 years ago which had existing tenants, but now I have a vacancy! The vacant space needs some work and it's on the 2nd floor with stairs; no elevator! I want to try and lease it out myself but all the interested people want 1st floor space, have no credit/bad credit, or want it heavily discounted. It's about 1500 sqft in a C class building so I know i'm most likely going to get a mom and pop type business. How do I find them if i'm listing it myself. What are some good online platforms I could use. Currently, I just have a sign outside the property. Should I consider lowering the rent just to fill the space or seek a commercial broker to help. I contacted a few. One wasn't interested and another wanted a year listing agreement. I was thinking something 3-6 months or is that impossible to get? Also, what are brokers fees on commercial leases? I'm looking to do a NNN lease. Do you they typically include taxes and CAM on their commission base? If anyone has a good recommendation on brokers in the Washington DC area, please DM me! Sorry, I have lots of questions. Commercial leasing is TOUGH! Definitely not as easy as residential.

[Russell Brazil]

Commercial spaces, especially small ones like this can take a while to get rented.  So that is why they wanted a long listing period. They dont want to put work in for 3 or 4 months, then give up the listing and have the next guy get paid when they did all the work.  

Are the other units in the building NNN? Do you know how to accurately calculate and divide up the costs to NNN it?

Whats the location of the property and whats the rent you are looking for?

Are you offering tenant improvement money?

[Marian Huish]

What kind of business was operating downstairs?   Is it in turnkey condition for a follow up business?  Location? What kind of rental income were you getting?   You’ll likely want to list with a Realtor.

[Sovat C.]

@Russell Brazil - Ahh you're probably right, but they would haven't done all the work and have someone else get paid if they found a tenant to begin with. I may reach back out to the listing agent and see if she'll do it. The other tenants are NNN and yes I know how to calculate it. I've been doing the yearly reconciliation and debit/crediting the current tenants. I'm looking for $18-20 a sqft. It's in Silver Spring/Langley Park area on a very busy road (University Blvd). There's a heavy Hispanic population which makes it even more difficult. I was debating on leaving it as is, then giving TI to who ever signs a LOI or I could just do a complete renno on it now to help secure a tenant.

[Sovat C.]

@Marian Huish  downstairs is a tattoo shop and barber shop.  The vacant space is not turnkey.  Do you think I should make it turnkey or give TI or rent abatement.  Which do you think would help it get leased faster.  I just want it leased at this point!!  It's in Silver Spring/Langley Park.  I want 18-20 a sqft. 

[Bob Langworthy]

I had a small office that needed to be rented and a local realtor listed it in exchange for one month's rent. It was completely passive on his part and ended up getting me a great tenant. In addition to retail, you may get a professional service provider. Attorney, accountant, architect, therapist, etc. might really like a space like that.

Hope this helps,

[Joel Owens]

Retail floor level lease rates are typically NOT the same as second level leases rates. The same can be said when entrance to a unit is on the side or back level of a building.

Not having an elevator is a big negative. It cuts down potential businesses who want to rent the space because their clientele might need an elevator to reach their space.

Have your leasing broker do a VOID analysis of your upstairs space. This typically determines the spaces highest and best use that is missing or in demand for the marketplace. Then from there rent per sq ft comps for upper level spaces with no elevator and similar locations. Then leasing broker figures out TI,LC, average attorney legal costs doing lease,etc.

It's not about what you want to rent it for it's what the MARKET tenants are willing to pay. 

[Damon DiPlacido]

Sovat - Is this $18-20 psf NNN? I know each market is different but $18-20 psf sounds high for 2nd floor Class C space, especially if a NNN rent number. What are your nets per SF?

[Sovat C.]

@Bob Langworthy - I might try asking a friend but all the brokers I spoke with wanted 10% for the entire lease including options.  

@Joel Owens - spot on!  so many people just arent interested in 2nd floor spaces!  I'll look into getting a void analysis done.  I was getting 16 a sqft with the prior tenants which was there for 5 years.  What does LC stand for?  Do you have any suggestions on how to market or source a tenant besides using a broker?

@Damon DiPlacido yes $18 NNN for 2nd floor. 1st floor i'm getting $27-29 psf NNN. CAM/taxes add another $7-8. another building across the street was getting almost $40 psf for ground level also NNN.

[Joel Owens]

LC = leasing commissions

[Isaac S.]

Thanks to the OP and to the respondents! I'm slowly trying to learn about retail and office, in order to diversify out of multi-family or even transition totally out of it.

I don't know him personally, but we have spoken and I always see his excellent posts....but,I imagine, the good brokers, like @Joel Owens , build relationships with other brokers, investors, and businesses that are always looking for space...I bet he also, gets involved locally and meets other members of the local community and are constantly networking and trying to build and strengthen their network, in regards to commercial spaces.

The right broker, that is competent and concerned about adding value to a transaction, is worth the percentage they are asking for...usually. Especially the more you(as an investor) value your own time.

BUT, to directly answer your question. IMHO, commercial involves much more active networking. Figure out what business could work from your second floor location.

For example, I often see tax services on second floors...so, focus advertising or networking at local university with accounting program OR contact HR Block corporate and find the department or people at Block, that helps franchisee open up locations and let them know about your available space...more than likely they will have a broker that helps them and will direct you there, but networking with that broker could lead to a very profitable partnership.

Basically, figure out the business that can work there and then use common sense to find sources or connections to those types of business people. Then go after your customers and sell that $17sq.ft location, like a boss!

[Michelle R.]

@Sovat C. Basically, an agent is not going to want to bother working to lease this. Reason being, leasing commission is typically paid out only on the base rent, not the CAM or taxes. Leasing commissions in my area area are typically 6%. So the agent would be earning $1600, which is not much of an enticement.

I do recommend to paint your unit, at a minimum, so it will show well when you finally do get some prospects.

We have a few second floor vacancies similar in size to yours in a property we have owned for 1 year. From what we have seen, the typical prospective tenant who has been contacting us has been a C level tenant with not much credit nor a long history in business. (Often their current business location is their house.) We did lease out one vacancy upstairs, to someone who contacted us from our listing on Costar/Loopnet. Otherwise, inquiries from Costar/Loopnet for the upstairs spaces have been few and far between.

We are going to try Facebook marketing. Basically if someone has searched for office space on Google, Facebook would retarget them with our ad. We haven't done it before so can't say how effective it will be. Listing to MLS is also an option, as is mentioning your vacancy on local Facebook groups for your area.

Anyone have other ideas on how to get vacant space in front of office tenants? Office in many markets currently has 25-40% vacancy as it is quite difficult to fill.