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Is a build-to-suit lease the right option for commercial space?

On Behalf of | Jun 24, 2024 | Commercial Real Estate |

Finding the right commercial space for a business is a difficult prospect. Particularly when a business has unique needs, it can be very difficult to find a property that checks all of the appropriate boxes.

The business owner or executive looking for a retail space or manufacturing facility could spend months hunting for the right location with minimal luck. In some cases, a build-to-suit lease might seem like a viable solution. As the name makes clear, a build-to-suit lease entails a property owner or developer constructing a facility according to a business client’s very clear specifications.

Is a build-to-suit lease truly the best option available when available units on the market don’t meet a company’s needs?

Build-to-suit leases have pros and cons

There are many obvious benefits to negotiating a build-to-suit lease with a developer. Guaranteed tenancy, facilities that absolutely meet certain standards and the ability to avoid the expensive direct ownership all make build-to-suit leases a reasonable option for organizations. It is even possible to write off rental costs for tax purposes after signing a build-to-suit lease.

The drawbacks include the cost, as such leases tend to be much more expensive than a standard commercial lease. Additionally, the credit history of the business is also a major consideration. A company either needs to have a lot of capital or a track record of success. Developers don’t want to invest months of work and tens of thousands of dollars into customizing a space, only to have the tenant file for bankruptcy within months.

In some cases, a build-to-suit lease is the best option because it is the simplest way to acquire facilities that truly meet a company’s needs. Other times, renovating an existing facility would be faster and more cost-effective. The local market and the needs of the company can have a major influence on the right solutions for rented commercial space.

How well a build-to-suit lease can truly serve the needs of an organization will depend, in no small part, on the terms included within the lease itself. Negotiating appropriate commercial lease terms can be beneficial for any business executive aspiring to acquire rented property. Build-to-suit leases are one of several options that can make appropriate commercial spaces accessible to businesses with specific needs.