How to Conduct an Industrial Lease Feasibility Study (and Avoid Costly Pitfalls)
Introduction
Signing an industrial lease isn’t just about finding available square footage—it’s a major business decision that demands thorough due diligence. Conducting a feasibility study helps you confirm the space’s true costs, legal compliance, and operational fit before you commit. In this guide, we’ll explore how to evaluate your prospective property’s location, zoning, and future scalability to protect your bottom line and keep your operations running smoothly.
In this guide, we’ll cover:
✅ What a feasibility study is and why it matters
✅ Key factors to evaluate before signing an industrial lease
✅ How to calculate total leasing costs and operational feasibility
1. What Is a Feasibility Study for an Industrial Lease?
A feasibility study is an in-depth evaluation of a property’s financial, operational, and regulatory fit for a business.
Why It’s Important:
Ensures the property aligns with business needs and growth plans.
Identifies hidden costs, such as NNN expenses, buildout requirements, and compliance issues.
Prevents costly lease mistakes that could lead to relocation or legal issues.
📖 Read more: "The Top 5 Mistakes Industrial Tenants Make When Leasing a Warehouse."
2. Key Components of an Industrial Lease Feasibility Study
A feasibility study should assess the following:
| Category | What to Evaluate | Why It Matters |
|---|---|---|
| Location & Logistics | Highway access, traffic patterns, workforce availability, and proximity to suppliers/customers | Impacts delivery efficiency & labor costs |
| Zoning & Compliance | Permitted uses, environmental restrictions, occupancy limits | Ensures the business can legally operate |
| Space Requirements | Ceiling height, column spacing, loading dock configuration | Determines if operations fit within the space |
| Lease Economics | Base rent, NNN expenses, rent escalations, incentives | Helps budget total leasing costs |
| Operational Costs | Utilities, maintenance, security, insurance | Identifies ongoing property-related expenses |
| Future Expansion | Sublease rights, renewal options, expansion clauses | Ensures flexibility as business grows |
📖 Read more: "How to Choose the Right Industrial Space for Your Business."
3. Location & Logistics: Evaluating Site Suitability
Industrial tenants must ensure a location supports operational efficiency.
✅ Key Questions to Ask About Location:
Is the site near major highways, ports, or rail access?
Does the location provide a strong labor pool for warehouse or manufacturing jobs?
Are there traffic restrictions that could limit truck deliveries?
🔹 Example:
A distribution company leases a 200,000 SF warehouse in a low-cost industrial park but later discovers:
Truck restrictions delay shipments.
Limited workforce availability increases labor costs.
💡 Pro Tip: Visit the site at different times of day to evaluate real-world traffic conditions.
📖 Read more: "Zoning Laws for Industrial Tenants: Key Steps to Avoid Compliance Risks."
4. Financial Feasibility: How to Calculate Total Leasing Costs
Lease expenses go beyond base rent—tenants must calculate total occupancy costs.
A. Total Lease Cost Formula
Total Lease Cost = (Base Rent + NNN Expenses) x Square Footage
🔹 Example Calculation:
A logistics tenant leases 100,000 SF with:
Base Rent: $6.50 per SF
NNN Expenses: $2.25 per SF
Total Lease Cost = ($6.50 + $2.25) x 100,000 SF = $875,000 per year
🔹 Hidden Costs to Factor In:
✅ Property Taxes: Can increase after a sale.
✅ Maintenance & Repairs: Roof, HVAC, and electrical costs.
✅ Tenant Improvements: Buildout costs for office space, racking, or equipment.
5. Zoning & Permitting: Ensuring Legal Compliance
Confirm that zoning laws permit your business activities.
✅ What to Check Before Signing a Lease:
Zoning Classification – Does it allow for your operations?
Environmental Restrictions – Are there hazardous material limitations?
Occupancy & Business Permits – Does the property require a new certificate of occupancy (CO)?
🔹 Example:
A manufacturing company leases a 50,000 SF warehouse but later learns:
The property lacks the required power capacity for production equipment.
The city restricts manufacturing use in the industrial zone.
💡 Pro Tip: Always request a Zoning Verification Letter (ZVL) from the city before signing.
📖 Read more: "Zoning Laws for Industrial Tenants: Key Steps to Avoid Compliance Risks."
6. Operational Feasibility: Analyzing Facility Layout & Utility Capacity
The right warehouse layout can improve efficiency and reduce costs.
✅ Key Facility Considerations:
Ceiling Heights – Can racking systems be optimized for vertical storage?
Loading Dock Configuration – Are there enough dock-high doors to support daily shipments?
Power Requirements – Is there enough 3-phase power for manufacturing or heavy equipment?
🔹 Example:
A distribution tenant moves into a 100,000 SF warehouse but later finds:
Column spacing is too narrow for efficient forklift movement.
Insufficient dock doors delay order fulfillment.
💡 Pro Tip: Tour multiple industrial spaces to compare operational layouts before committing.
📖 Read more: "How to Choose the Right Industrial Space for Your Business."
7. Future-Proofing: Ensuring Lease Flexibility for Business Growth
Industrial leases should support long-term growth and adaptability.
✅ Key Lease Terms to Negotiate:
Expansion Rights – Can the tenant lease adjacent space in the future?
Sublease & Assignment Clauses – Allows flexibility if business needs change.
Early Termination Options – Avoids penalties if relocation is needed.
🔹 Example:
A fast-growing e-commerce tenant locks into a 10-year lease but outgrows the space within 5 years.
Without an expansion clause, they must break the lease or relocate at a high cost.
💡 Pro Tip: Secure renewal options and expansion clauses to avoid business disruptions.
📖 Read more: "Industrial Lease Exit Strategies: Avoid Penalties & Save Money."
8. Final Thoughts: Conducting a Smart Feasibility Study Before Leasing
Before committing to an industrial lease, tenants should:
✅ Assess location, logistics, and workforce availability.
✅ Calculate total lease costs, including NNN expenses.
✅ Verify zoning compliance and environmental restrictions.
✅ Ensure the facility layout and utilities support operations.
✅ Negotiate lease terms that allow flexibility for growth.
📌 Need help conducting a lease feasibility study? Schedule a Consultation Today.
