I'm negotiating with a client down here in SoCal to handle the leasing of C class commercial buildings. They're all coastal properties in great locations. Some just a block from the beach here in San Diego. Mostly mixed usage (retail/office). Suites for office max out at 2000sqft. His retail is prime stuff. Bar districts drawing upwards of $8ft monthly plus % rent.
All the buildings total around 100,000sqft.
The owner is elderly and has pretty high vacancy on his office space due to simply letting it get away from him. He's since brought in an asset manager to begin cleaning things up. They're talking with me on Friday about handling all the leasing.
What leasing commissions are you seeing these days for new leases, renewals and extensions?
I'm in retail, but for renewals and extensions we get nothing. Just goodwill from the client/landlord if we even get involved at all, normally it's handled tenant to asset manager with the lawyers. And I didn't go to law school so I'm not much help there.
New leases market rate(SE US) is normally 4%, can be 5-6% if the landlord loves you, you're working with a master broker(so you're already cutting your cut in half), or something like that. But the norm is 4%. The landlord can also (shady ethics ahead) build the extra 1-2% into the rent price to the tenant, whether or not you choose the tell them...... Not the best practice all the way around, but I've seen others get away with it while I shook my head from a distance.
Hope that helps.
No senior broker, just me. Wow so 4% even on small deals huh. Most of my commissions on leasing come from a few bigger'ish NNN deals. A couple a year. Never really been the leasing broker on a multi tenant building. Thanks for the input.
Do you maintain communication with the tenants during their tenancy? The goal would be to rep them on a new space if they outgrow the current one you originated with them.
Like some others have said the % gets cut in half for years 5-10 on a ten year deal.
I maintain comms with tenants during their tenancy mostly because the majority of my clients are national retailers so we have relationships with the area real estate managers, not necessarily the local store manager types. We also place tenants over a more regional area and not just in our metro so that makes a difference when I'm doing a single operator cupcake shop opening a second store vice a national restaurant looking to put 15 stores in a market as fast as they can hire operating manager or get franchisees.
To your question, right-sizing a space to a current tenant happens, but more likely we're looking for another location for an additional storefront if they're really that busy. Most tenants have a set prototype size that they generally stay with subject to the market conditions, demos, traffic, etc and we would run their customer data to identify new market location opportunities.
Should have mentioned, as a landlord rep I'm normally at 4% also, or $4/ft depending on what the landlord wants to do and how much space needs to be leased. Old shitty "opportunistic" centers are more likely to be $4, new dev is normally 4%. 6% would be great like some other responders have said, but I've never seen it in my market other than as the opening gambit in a negotiation.
Edit: I reread Gentleman and Scholar's comment and yeah, 6% inclusive is correct. I normally just look at one side but as a developer I've budgeted 8% for transaction costs. If I can get away with less, great, but everyone needs to get paid so it doesn't always work out how you'd like.
I work in acquisitions for a socal developer. The deals I work on are typically 6.0% years 1 - 5 & 3.0% years 6 - 10 (inclusive of inside & outside broker).
Per the retail I'd say 6% years 1-5. 2-3% 5-10 years+. Also depends on the size and credit of the tenants your bring.
Also...I swear I am not trying to hijack your thread..... but do you have any rent comps for bars/restaurants in Coastal SD? PB, MB, OB, etc.?
All good info guys.
I do have comps. My client is not at the top of the market. He is the market. Nice to see you back three.commas.
Landlord brokers on the West Coast are banking 4%? Holy $hit, I need to move. Not in your region (East Coast) but for landlord leasing teams we see 2% for new deals, 1% for renewals/extensions up to 10 years with years 11-15 on longer term deals half of the base commission rate. Tenant rep is basically 2x that. Retail is the same.
If you are good, there is a legitimate argument to be made that you should be paid 25 to 50 bps more because you are putting in a lot of ground and pound/time investment on a series of listings that are churning relatively low commissions for the amount of effort expended (2,000 SF deals). Unless that brokerage market is very competitive and someone will take a market fee no matter the workload.
Here in D.C. it's 6% commission on leases. If there is a tenant rep then the commission is split to 3% each. If no tenant rep then our brokers take 4%. Seems to be the standard around here.
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