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minicity, Both Buyer and Seller in California

What is the standard commission paid to brokers for industrial warehouse/commercial leases ?

Asked by minicity, California Sun Sep 30, 2007

We have just taken a thirty year lease on a warehouse and are unsure how to compensate and market to brokers who bring us lease prospects. Should our commission to them be based on a flat percentage of the $ lease, or a flat fee ? Are these rates standard throughout the industry ? Our warehouse is mostly improved raw space with a small portion improved to "office" amenities. Should the compensation to the brokers be the same for the raw warehouse space as it is for the more expensive office space?

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Flat fee in this market will not get your building filled, and will not guarantee quality tenants.

Commissions on industrial property are mostly sliding scale, which I will expalain in a minute.

You want good people in your building and a good leasing agent is worth his or her weight in gold along these lines.

You should also be prepared to make tenant improvements to secure a good tenant. ie. electrical, plumbing, showroom, etc... This is a concession and of course is totally negotiable.

A siding scale commission is standard. The following is an example. Most industrial leases are 5 years with an option. All leases are tied to an annual CPI increase.

A n example of a commercial commission structure for a five year oculd be as follows:

5% the first year, 4% the 2nd year, 3% the 3rd year, 3% the 4th year and 2% the 5th year. That is the percentage of the annual rent for the entire term of the lease.

If the rent is $5,000 per month. That equates to $60,000 per year.

Year 1 commission is $3,000.
Year 2 is $2,400.
Year 3 is $1,800.
Year 4 is $1,800.

Your commission to lease that space is $10,200.00 In essecense, 2 months rent in this example.

Many commercial brokers charge more. This is only an example.

But what is it worth to you to secure a good tenant who will pay you $300,000 in rent over the next 5 years?
Year 5 is $1,200.

With leases, everything is negotiable. You are climbing in bed with someone for say 5 years. You want that person to be successful so they will continue to pay their rent on time so you earn your $300,000 in 5 years.

You should be prepared to pay, in addition to the commission, a certain amout for tenant improvements, which add value to your building, to accomodate the tenants needs.

If you don't, someone else will and you will lose a good tenant.

This is why you need a good commercial leasing agent. They can advise you as to what is customary in your market.

You find a good leasing agent, latch on to them. Good ones are hard to find. Pay them what they are worth. Don't try to cut corners on commmission. Get and keep great tenants. Simplify your life.

I hope this helps.
3 votes Thank Flag Link Sun Sep 30, 2007
Hi Mike. I think Ed gave you a very good answer. I have nothing of substance to add to his response. I know an agent who does nothing but industrial real estate. His name is Richard Hunter. He can BE reached at (510)410-4744. He works for CB Richard Ellis, Inc. in the San Francisco Bay Area. I am sure he can give you all the details about compensation and whatever else you'd like to know.
Web Reference: http://www.go2kw.com
1 vote Thank Flag Link Sun Sep 30, 2007
Ute Ferdig -…, Real Estate Pro in Newcastle, CA
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Here is another thought to ponder.

You want to pay a flat fee? Pay the broker 6%. Like they "sometimes" do on residential transactions.

$300,000 income X 6% = $18,000.00.
1 vote Thank Flag Link Sun Sep 30, 2007
Dear Mike,
I can't really tell you what a particular brokerage might charge you to lease your property because of the legal ramifications.
The rate is part of the negotiation and normally will be one amount that is a percentage of the years lease for the first 24 months and grandually drop down for the first 5 years of the lease.
Web Reference: http://www.cbcworldwide.com
0 votes Thank Flag Link Thu Feb 11, 2010
What's the percentage commission on sale of commercial buildings in CA
0 votes Thank Flag Link Tue Nov 18, 2008
We have used variations such as the % - 5% or 5%, or a lumpsum upfront or quarterly.
Web Reference: http://www.iansellsnola.com
0 votes Thank Flag Link Mon Oct 1, 2007
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