how much retail space to lease
  • By: Diana

How Much Retail Space Should I Lease?

The right answer starts with the amount of space that maximizes the profit from a particular location.

Unfortunately, that’s not a simple analysis. So, it’s also helpful to understand what’s the minimum amount of space you can fit your business into because that might be all you can really afford, or it might be really hard to figure how much incremental profit will come from any additional square footage that you lease. That being said, it’s usually difficult, if not impossible, to expand your operation after you sign the initial lease, so if you end up determining after the fact that you should have leased more space, you’ll probably be out of luck unless you move (and somehow deal with the lease that you just signed and the expense to relocate).

A further consideration is the availability of quality spaces in the area where you plan to locate. The qualities of the specific location are usually more important than the precise size of the space you desire and you will be faced with trade-offs based upon what spaces are actually available for lease.  But you first need to know at least an approximate size range for your business before you can begin the site selection process. (We’ll help you with this with the chart below.)

STEP 1

If you haven’t prepared at least a basic store layout, developing one is your first step.  You should probably take a crack at sketching it out yourself.  You can simply use graph paper and a ruler or for the more technologically inclined you might want to try laying your space out using Sketchup or SmartDraw.  It will get you to start thinking about things such as:

  • Where do you want your entry door relative to your cash registers or reception desk? (think about it from a customer viewpoint as well as from a security perspective)
  • How will you maximize usage of your valuable window-line? (what do you want customers outside to see in order to lure them into your store?)
  • How will your customer circulation work?  What items do you want in front the front of the store and how will they be displayed?
  • Where will your storage space be located?
  • How/where will you take deliveries?
  • How will you handle trash, etc.?

You might consider adding to your reading list:Inside the Mind of the Shopper, The Science of Retailing, by Herb Sorensen, Ph.D.  It’s a rather academic, although very well-researched and thought-provoking book about grocery store layout and store design.  You’ll learn why most grocery store entry doors are on the right and why customers typically navigate stores in a counter-clockwise direction, among other interesting findings that are likely also applicable to other store types.

STEP 2

Once you’ve developed a sketch or two to reflect your vision and determined the approximate size(s), you can compare your initial findings with other businesses that you already know.  Below is a table including categories of retailers and service providers in New England with typical size ranges and averages for well-known retailers.

The table includes the retailers in each category with the greatest number of stores in our region, with the average square footage numbers rounded to the nearest 100 sq.ft.

  • Convenience Stores 1,400 – 2,900 SF
  • Eye Care 500-3,700 SF
  • Wireless Stores 1,200-2,900 SF
  • Coffee/Donuts 800-2,200 SF
  • Pizza 1,200-3,100 SF
  • Fast Casual 2,200 – 2,400 SF
  • Mexican/Burrito 1,500 – 2,500 SF
  • Quick Serve Sandwiches 800-4,500 SF
  • Quick Serve Burgers 1,800-3,600 SF
  • Ice Cream and Yogurt 600-2,600 SF
  • Dry Cleaners 1,200-3,600 SF
  • Nail Salons 900-1,600 SF
  • Hair Salons/Hair Cutters 800-2,200 SF
  • Health & Fitness Services
    (small format operators) 1,200-4,500 SF
  • Wine/Liquor 2,000 – 17,000 SF

(The above data was compiled mostly from KeyPoint Partners‘ proprietary retail research. KeyPoint Partners offers a variety of interesting publications about retail real estate I’m sure you will find of interest.)

STEP 3

There’s still much work to do on the store planning and layout front but the real work will begin when you start to evaluate specific spaces.   Accordingly, it makes sense to identify a retail space architect/interior designer who can help you lay out specific spaces once you zero in on one or two locations.  The best spaces that come available for lease often lease up quickly, and having this space planning relationship lined up in advance can help you be ready to act quickly.

If you find yourself considering one of the spaces we have available for lease in our portfolio, we can help point you to such firms who can assist you.   We have found that hiring an architect, although not always necessary, is money well-spent to avoid later surprises, unless you happen to be a code expert and know the local bylaws that will come into play.

STEP 4

So now you’ve figured out the ideal size for your store, selected a target location, hired an architect, developed an initial space layout and are now ready to lease the space.  Almost.  How much rent should you pay? What other lease terms are important to address?  Assuming you started the whole process by making sure you had the financial resources lined up to launch your new business, which is mission number one, you may still need some help to get across the finish line.  Maybe it’s a great topic for a future blog, although I am probably too conflicted to really help you with these issues.  Lining up an attorney who specializes in commercial/retail real estate along with an experienced retail broker or advisor to represent you might be a better plan.