Massage therapy clinic tenants can maximize profits by leasing the right amount of square feet in the best possible shape for their business.
So often, massage clinic tenants come to me and say they are not making any money because their rent is too high. Sometimes this is a true statement, but more often than not, the massage clinic tenant has simply leased too many square feet.
I remember consulting to a pharmacy owner with 8,000 square feet of space who couldn’t afford to pay the rent. When I checked with other tenants in the building, it turned out the pharmacist was actually paying less per square foot than anyone else. It wasn’t the rent per square foot that was killing his business, but the amount of square feet he had been talked into leasing by the landlord’s leasing representative. By negotiating to surrender 3,000 square feet of space back to the landlord, the rent decreased by $45,000 per year and the business could once again become viable. Don’t learn your lesson this way; it’s too expensive.
Occasionally, I deal with the reverse scenario. A dentist told me his space was too small. If we could expand the dental office, he could see more patients. By negotiating to lease the space directly adjacent to his clinic (which meant relocating the neighboring tenant), the dentist achieved his goal. Generally, a landlord would rather work with a tenant who wants to expand versus one who needs to downsize.
Since most landlords charge rent on a square footage basis, it makes perfectly good sense to analyze and scrutinize your clinic’s size requirements carefully. Additionally, in most cases, you will pay operating costs or CAM (common area maintenance) fees based on a square footage basis, too. It has been my experience that the main reason massage clinic tenants end up leasing the wrong amount of square footage is due to availability … or lack thereof. If you need about 1,800 square feet for your clinic but the only two spaces available for lease are 1,524 square feet or 2,137 square feet, you will face a dilemma. If the space is too small, it will probably have less frontage as well. This gives you less storefront exposure, which is critical for both retail operations and other types of businesses.
When choosing between locations that are modestly too big or too small, massage clinic tenants should almost always let their decision be based on which space has the better location. If the units were side by side or comparable, then I would lease the smaller location. Massage clinic tenants who tell me their location is too small are usually making a profit—they simply want to make more money by expanding to increase their sales. Massage clinic tenants who tell me their location is too big often want to downsize to reduce rent payments as a means of improving their bottom line.
In one particular case, my client, a national retailer, wanted 1,000 square feet more than was available in a prime corner location. With some persuading, the landlord agreed to relocate one tenant and reconfigure another tenant to make room for my client, who otherwise would have simply walked away from the deal. Creative suggestions and good communication are all part of negotiating, so make sure the leasing representative knows the deal is on the line if a solution cannot be found. Walking away from a location because the size or shape of the space doesn’t suit you is an alternative that needs to be exercised by more business owners.
Prior to becoming a lease consultant in 1993 and exclusively representing tenants, I was a typical leasing agent and shopping center manager. Back then, as it is today, leasing agents are motivated by commission. The greater the area the tenant leases, the larger the commission received.
However, the shape of the premises for your massage therapy clinic must be considered from a functional perspective. In one situation, the landlord expanded his strip mall claiming that only one CRU (commercial retail unit) was left. Unfortunately, this unit housed a large utility room in the back. This would make the back of the space unusable for almost any tenant. Since the expansion portion of the project was only in the construction phase, I suspected the landlord still had time to adjust and move other newly-interested tenants around. I suggested to the tenant we walk away from the deal as a negotiating strategy. As expected, within a few days the landlord reconsidered his position and predictably came up with a better location with no utility room. My client leased a much better location in the right shape and configuration for her needs, while some other tenant became stuck with the less desirable utility room unit.
For retail tenants, a square box is most often the optimum shape of space. Rectangle-shaped CRUs are most common and acceptable, provided they are sufficiently wide and not too deep. Most retail tenants should not consider leasing space that is less than 18 feet in width. I prefer a minimum 20-foot storefront width or more to increase visibility and versatility of use. It is also possible to lease a wider storefront that narrows at the back. This type of creative thinking can make questionable space much more attractive and viable.
Phantom space is one of my favorite topics. This is where the lease agreement says the tenant has 2,000 square feet, for example, but when the area is measured, the real square footage is much less. Since tenants pay rent by the square foot, landlords can benefit greatly (even if unintentionally) by leasing out more than 100 percent of the building. Phantom space will exist either by intention or by accident. An unscrupulous landlord could be taking advantage of his/her tenants or this might simply be a mistake—but either way, it costs the tenant money. Don’t be like most tenants who take the landlord’s word; have your space professionally measured.
In one case, we measured a client’s premise and discovered that instead of the reported 4,400 square feet, the tenant’s space only contained 3,600 square feet. The landlord had purchased the building a few years ago and never questioned the previous landlord’s measurements. The tenant not only received a refund for previous months she had overpaid, but also a $1,000 per month rent reduction for the remainder of the term.
In another instance, we measured space occupied by a small chain store in a downtown shopping mall. A 40-square foot discrepancy was uncovered, phantom space the tenant had been paying $70 per square foot on for the past seven years. Once again, we prevailed and the tenant received a refund of more than $10,000.
Much commercial space is measured incorrectly. In most cases, a substantial incorrect measurement can be defined as a discrepancy of 5 percent or more. In actuality, we’ve discovered that nine out of 10 measurements will favor the landlord and one out 10 times the tenant is ahead. Having your commercial space professionally measured by an independent expert will provide peace of mind—and I highly recommended it.
Dale Willerton is The Lease Coach and a certified lease consultant who works exclusively for tenants. Willerton is a professional speaker and author of Negotiate Your Commercial Lease. If you have a leasing question, contact Willerton at (800) 738-9202, via e-mail at DaleWillerton@TheLeaseCoach.com or visit www.TheLeaseCoach.com.