For our retail-themed issue, we thought it would be great to dive into the subject of leases with Michelle Bomberger, owner and CEO of Bellevue’s Equinox Business Law Group. We asked her about retail – specifically, where best to start a retail business on the Eastside and what you need to know when negotiating a lease.
What should a retailer know when negotiating a lease on the Eastside? What Eastside areas are, in general, better (or worse) for starting a retail business, and why?
Anyone in retail can tell you that it’s an incredibly rewarding industry, but also an incredibly competitive one. Finding the right spot to open your retail business is tricky, and success requires a deep knowledge of your customer, a strong marketing plan and a solid landlord-tenant relationship.
A well-known phrase in retail success is, “Location, location, location.” So, how do you determine the right location?
The primary factor is an understanding of your customers’ demographics and preferences. Since the Great Recession, there’s been a shift of workers into cities and suburbs with ample public transit and amenities — cities like Bellevue and Redmond. This sounds great for a retailer — a centralized area with lots of pedestrian traffic — so we expect more demand for retail space in these areas.
However, these growing areas can have a downside, as well. The volume of new retail and mixed-use developments create lots of new space, and with the constant change, you don’t know when a competitor will move in next door or down the street. In addition, it will take time for these new developments to fill with tenants, so retailers will take on some additional risk in moving in early.
When selecting a space, you also must be aware of the impact of infrastructure developments such as Sound Transit’s East Link. The long-term effect of the light rail (likely will be) positive for most cities along the rail line, but the interim construction likely will have a dramatic negative effect on those near the line and its staging facilities.
An understanding of these effects on a given retail space could provide leverage in negotiating lower rents or options to exit the lease so as
to minimize these potential risks.
The opportunities in the farther or less-connected suburbs are still attractive. Many shopping areas have developed in smaller cities such as Issaquah, and these retail spaces include a mix of pedestrian-friendly “main street” areas like Front Street and outdoor malls like those
on Gilman Boulevard.
In addition, the shop local movement has gained momentum. Small towns like North Bend have close-knit communities where residents hang out together and buy from local establishments. So although cities are the emphasis these days, the right location for you depends on your customer and marketing strategy as well as the volume of business you need to thrive.
Once you find a space of interest, you begin to negotiate your lease. The lease is not just another business contract — it’s typically a huge commitment both for the business and yourself. Ten-year leases are common, and personal guarantees by the owners for the payment of rent are almost universally required. These obligations present significant risks that you must understand before undertaking such a commitment.