Guide to Finding Warehouse Space
Warehouse Space Search Process
Finding new warehouse space can be hard, time-consuming, and expensive. However, following a process and hiring an industrial tenant representation broker can make it easier.
The first step is determining what you need out of your warehouse space. Taking the time to understand exactly what your company needs is critical to making sure the rest of the process going smoothly.
• Mix of office & warehouse space?
• How many employees do you have in the office?
• What are your growth plans?
• Where do your employees live to help determine location?
• Where are your primary customers/vendors located?
• Bulk/Distribution? Manufacturing? Flex? Outdoor Storage?
• Loading? Clear Height? Electrical Needs? Floor Load? Sprinkler?
• Logistics considerations. Trucking? Rail? Access?
After you have determined the basics, CRE Partners will get started on your search based on your needs and goals. Our specialists will do all the legwork: lengthy internet searches, detailed property info gathering, narrowing down the options, and set up property tours.
After the search is complete and you have narrowed down the options, we will complete a full financial analysis and detailed comparison. We will help you determine estimates for tenant improvement costs, projected layout, and logistics costs. This will help us set a baseline for negotiations.
4. RFPs, Proposals, Counter-proposals, Negotiation
We start the negotiation process by submitting RFPs to Landlords. Details will include lease term, tenant improvements, and basic lease expectations. As a negotiation tactic, we get the building owner to provide us with the first offer. This will help us to do a formal comparison and determine which items we need to negotiate.
Once an agreement has been reached, we will draft an LOI for signature. A LOI outlines the key terms and conditions of the lease to be drafted and serves as a good faith agreement between the tenant and the landlord, but is non-binding.
5. Lease, Build-out, and Delivery
Our agents will assist in the review of any lease agreement and will oftentimes make suggestions. However, we already recommend you have the lease document reviewed by an attorney. Once your lease is signed, we will have a number of suggestions. If you entering into a large transaction, we would recommend a project manager to assist in the construction and move to make sure things go smoothly. On a smaller scale, we can suggest vendors to help with all aspects of your move and setup. We also stay in touch with the Landlord periodically to monitor the process.
When Should I Start Looking?
When should you start looking for an industrial property? It is important to start the search early enough so that you can consider all of your potential options (renewal, relocation to existing industrial space, relocation to new construction, or build-to-suit), help create a competitive environment, and gain leverage to negotiate the best deal. You also want to make sure you have plenty of time to complete build-outs and allow for a move. The bottom line is, the earlier the better, but here are some general guidelines.
Timelines will vary depending on the size space you are looking for:
|100,000 SF +||24 Months Prior to Lease Expiration|
|50,000 – 100,000 SF||12 Months Prior to Lease Expiration|
|Less than 50,000||6 – 12 Months Prior to Lease Expiration|
Other important things to consider:
• Overall market conditions
• Existing space or new construction
(New construction should start considerably earlier)
• In the age of COVID and supply chain issues, what are construction timelines
Start the Process Early, Even If You Plan to Renew
Even if you’re happy with your current warehouse and intend to stay in place or renew your lease, it’s important to follow this same timeline and process, in order for you to have the most leverage in your negotiation with your landlord.
What type of warehouse space do you need?
There is a wide range of warehouse buildings available in the market, from the new construction distribution centers, build-to-suit options, manufacturing facilities, high finish flex space, to more value-centric options. It’s important that you know what your company’s priorities and budget are before you begin the search process. When determining what type of industrial space is best for your company, you should consider:
Classifications of Industrial Buildings
Office buildings are typically divided into five main categories: bulk distribution warehouses, manufacturing buildings, cold storage buildings, flex space, and those that accommodate outdoor storage needs. While there aren’t any all-encompassing rules to these classifications, they are typically based on quality factors such as building age, clear height, loading, office – warehouse mix, and land size. Each classification has different price points and advantages.
Distribution Warehouses: Bulk distribution warehouses are ideal for tenants such as logistics and distribution companies who need to ship goods to businesses or consumers. These buildings typically have 5% to 10% of the overall square footage dedicated to office area with the rest dedicated to warehouse space. The buildings are typically have ceiling heights of 24′ – 38′ feed. They also have lower parking ratios than other types of industrial buildings, but larger truck courts and the potential for trailer drops.
Manufacturing Buildings: Unlike most bulk distribution warehouses, manufacturing buildings often have highly specialized infrastructure and finishes, including: heavy electrical power, air lines, and storage for chemicals. Depending on a company’s needs they may also have user-specific drainage, ductwork, ventilation systems, oversized loading docks, and water, gas or chemical lines. Generally, these buildings are lower clear or ceiling heights and are often 12′ – 18′. Individual manufacturing buildings are becoming harder to find in the Twin Cities as many are so specialzed, they are retrofitted to other uses. Many of these buildings are considered functionally obsolete as they don’t work for a wide range of uses.
Cold Storage Buildings: Another highly specialized use for warehouse buildings is cold storage. Because of the high cost to build out, cold storage space for individual tenants is limited. Most cold storage facilities in this area are single-user buildings built specifically for large national food distribution and manufacturing companies. Cold storage warehouses have large-capacity coolers and freezers to store food or other temperature-sensitive items. This type of storage may also require a specialized foundation because the freezing, often sub-zero, temperatures in the coolers can cause slabs to crack.
Flex Space: Flex space is a type of industrial building in which a tenant occupies that are built out more as office space with storage.
Specialty Buildings: Another subset of industrial buildings are for specialty uses. These include buildings & land that can accommodate outdoor storage, freight companies, research & development uses, medical with clean rooms, and maintenance facilities.
How much warehouse space do you need?
Once you have an idea of the type of industrial space you want, the next step is to find out how much space you will need. In order to help you estimate this number, we need to think about the following.
Is the space going to be used for storage or manufacturing?
Storage & Distribution What size are your pallets? How many pallets do you store on a regular basis? Can they be stacked or racked to take advantage of the cubic space
• 40% Utilization – Used when products can’t be neatly stacked.
• 50% Utilization – Used for products that stack neatly and turn 10-15 times annually.
• 60% Utilization – For non-date-coded products with 10-100 SKUs that turn 10-12 times annually.
• 70% Utilization – Products turn 4-6 times annually with 10-100 SKUs and no date codes.
• 80% Utilization – Products are stacked tight and neat with no date codes and 1-2 SKUs.
By calculating warehouse space using the method below, you can get a general estimate that you can then use to determine how much warehouse space you need.
1. Divide the number of pallets by how high you can stack.
2. Multiply the length and width of your pallets to determine the square footage of each pallet.
3. Multiply the numbers from 1 and 2 above together.
4. Divide the number you get from step 3 by your utilization percentage.
Manufacturing The amount of space you need will vary significantly on the type of business.
Company Growth & Parking
Don’t forget about planning for growth and if the warehouse building can accommodate your needed parking (cars & trucks)! Growth estimates over the lease term are important and should be added into the calculation upfront.
How much does warehouse space cost?
When comparing industrial rental rates, there are many factors that could influence the over cost. These include
• Type of the building
• Specialty Infrastructure
• Operating expenses (which include property taxes, common area maintenance fees, and property insurance)
Net Rental Rates in Minneapolis/St Paul
Net rental rates vary a great deal depending on location and type of warehouse building. Net rental rates can be anywhere from $4 per square foot to $8 + per square foot.
Of course, you may find that you have additional expenses that may need to be factored in. CAM/Tax is quoted as an additional expense and fluctuates from year to year. In most cases, utilities are NOT included, but you should verify that is the case. Here are other costs to consider:
• Security Deposit
• Legal Fees
• Moving Costs
• Outdoor Storage
• Electrical Distribution
• Build out cost not included in the Tenant Improvement package
How are industrial rental rates calculated?
To calculate the total yearly cost to lease your warehouse space, multiply the full-service rental rate (the sum of the base rent and all operating expenses) by the square footage of the space. Note, most warehouse landlords quote rental rates on a square foot per year basis.
How long of a lease do I need to sign?
Typical lease lengths vary by city and fluctuate with the market. In Minneapolis/St Paul, landlords are currently asking for lease terms between five and fifteen years due to the competitiveness and growth of the market. One-year leases do exist, but they are much harder to find.
Most landlords will prefer to have tenants sign a longer lease because it gives them stability within a building. The more competitive the market and the more concessions you ask for, the more leverage the landlord has to demand a longer lease. From a tenants perspective, there are numerous advantages for signing a longer lease:
• Locking in favorable rates
• Avoiding frequent relocation costs (can be a huge expense for industrial users)
• Ability to negotiate a better deal (more tenant improvements, free rent, and reduced rates)
Each time a tenant vacates a space, the landlord has to spend time and money to market the space, pay additional broker commissions, and generally spend more on TIs. As a result, shorter leases can cost the landlord more than longer leases. Typically, in a competitive market, it can be hard to secure a short-term lease. However, there are some factors that may make a landlord more willing to sign a shorter lease. These include:
• A space that has been sitting vacant for some time
• Smaller suites
• Premium rental rates
Typically, it makes sense for established, stable companies with clearly defined growth projections to sign longer-term leases, while shorter-term leases are a good fit for young companies with rapid growth plans who value flexibility.
What other upfront costs should you know about?
There are a number of other upfront costs tenants should be aware of when they start their warehouse space search. This include:
• Low voltage wiring for data/internet/security
• Legal costs to review the lease document
• Electrical distribution
• Equipment (Forklifts)
• Move expenses
• Above & beyond tenant improvements
Should you engage a warehouse tenant rep?
It is possible to go through this entire warehouse space search process without a tenant representation broker…but it would be a long and painful process. A few of the main issues:
• Searching for warehouse space is time-consuming and takes away from the time you could be spending on your business
• Lack of market knowledge to create leverage to get the best deal terms
• Finding the space is only the first step; industrial leases are complicated and the negotiation process requires extensive real estate knowledge in order to ensure that you achieve the best terms possible.
Interview and Hire Us!
Hire CRE Partners!
There are numerous benefits to hiring us as your industrial tenant rep, and it may not cost as much as you think. We will save you time and make the process efficient, allowing you to make the best decision for your company. We are expert negotiators, know the market, and can prevent hidden costs and problems. We will save you time & money!