Is getting a Commercial Real Estate Broker worth it?

June 11, 2024 8:07 AM

So we're looking for a small 1000 sq ft retail location. Is it worth it to engage a CRE broker to help us?

I'm perfectly fine sorting through the listings myself and contacting the leasing broker directly. What is the advantage of engaging a CRE to represent us? The reason I ask is that, if we do get a broker, he will be paid by the landlord. What incentive does he have to work in our interest? Also, I understand (please correct me if I'm wrong) that they are paid a percentage of the gross rent. Since we are renting such a small space, that is not going to be a lot of money. Again, will they be incented to work hard for us?

posted by storybored to Work & Money (3 answers total)

My employer is sometimes on the commercial landlord side, so I pulled out one of our most recent listing agreements engaging landlord's broker/agent. Per our agreement, the owner/landlord pays the listing agent a commission, and if the tenant is represented by a broker (the cooperating broker) the listing agent pays the cooperating broker half of the commission paid by the owner/landlord to the listing agent. If the tenant is not represented, the listing agent has a right to perform "dual agency", essentially representing both landlord and tenant then earning the full commission amount. So, in essence, the listing agent is equally incentivized to work for the tenant as for the landlord because they only earn half as much if the tenant has their own broker. With the caveat that the landlord probably has other properties listed so the listing agent wants to keep the landlord happy. In dual agency, the broker also has a professional, legal, and ethical obligation to fairly represent both parties.

All this to say that it's probably not terrible to work with the leasing broker directly. If you do not have a broker, though, I would suggest having an attorney look at the lease for you.

Some reasons to have your own broker would be if you're in a very competitive market, if you want non-standard lease terms, if you're asking for concessions or a tenant improvement allowance, or if you don't want to bother with an attorney to review the lease.
posted by rekrap at 1:24 PM on June 11

I think it depends on your needs. Are you looking for a high traffic class A strip mall location alongside national chain tenants? Then you probably want a broker who knows the big players.

Or if you're looking for more class B/C strip malls but are fine being next to whatever (like a vape shop or karate studio), then a broker might help get the best deal and avoid slimiest of landlords.

Another scenario could be that you're a hipster/artisan retailer that would benefit from being part of a well-curated group of tenants. I am involved in a small retail project that fits in this category. We chose not to hire a broker to represent us as landlord and instead just used social media, a free listing service (Crexi in the US) and word-of-mouth to find tenants. Some CRE brokers found us and introduced tenants. None were a good fit and mostly it was a waste of time.

I'm speaking from a US perspective, so I have no idea what changes if this is in Canada as your profile suggests.
posted by mullacc at 2:04 PM on June 11 [1 favorite]

Like mullacc says, if you have very specific requirements then "yes", but most people rent small commercial shops more like they rent apartments than like say, buy a home. It's all based on rent price per month, the location is relatively variable, prices are fairly fixed and not a huge amount of haggling, and therefore the value of a broker is far less.

If you are buying a large space or many spaces then the answer is also 'yes', because you can negotiate for better per-unit rates or terms.
posted by The_Vegetables at 2:32 PM on June 11