The Top 5 Mistakes Industrial Tenants Make When Leasing a Warehouse
Introduction
Leasing industrial warehouse space is a major commitment—one that can impact your company’s bottom line for years. Whether you’re a Texas-based manufacturer or a rapidly growing e-commerce business, overlooking critical lease terms or misjudging space requirements can cost you thousands (even millions) over time.
In this guide, we’ll cover five of the most common—and costly—mistakes industrial tenants make when leasing a warehouse. You’ll learn how to:
✅ Calculate space requirements accurately
✅ Identify hidden costs like NNN fees and unexpected maintenance
✅ Plan for expansion (or downsizing) with the right lease clauses
✅ Conduct thorough due diligence on property conditions and zoning
✅ Negotiate terms that protect your interests
1. Miscalculating Space Requirements
Many tenants either lease too much or too little space, leading to inefficiencies.
A. Common Space-Related Mistakes
🔴 Overestimating Warehouse Size Needs – Leads to higher rental costs for unused space.
🔴 Underestimating Storage Requirements – Can force an early lease termination or relocation.
🔴 Ignoring Ceiling Heights – A 100,000 SF warehouse with 24-foot clear heights provides less usable space than one with 36-foot ceilings.
B. Correcting This Mistake: How to Calculate Space Needs
$$ \text{Total Space Needed}= \frac{\text{Number of Pallets} \times \text{Pallet Footprint (SF)}}{\text{Building Height Utilization}} $$
🔹 Example:
A business stores 4,000 pallets, each needing 20 SF.
Warehouse ceiling height is 30 feet with an 80% stacking efficiency.
$$\text{Total Space Needed}= \frac{4{,}000 \times 20}{0.8 \times 30} = 100{,}000 \text{ SF}$$
💡 Pro Tip: Consider growth projections when choosing your space—many businesses grow faster than expected.
📖 Read more: "How to Choose the Right Industrial Space for Your Business.”
2. Not Understanding Lease Costs Beyond Rent
Many tenants only focus on base rent and ignore hidden lease costs.
🔹 Key Additional Expenses in Industrial Leases:
✅ Triple-Net (NNN) Costs – Tenants often pay property taxes, insurance, and maintenance.
✅ Operating Expenses (CAM Fees) – Common area maintenance costs can fluctuate annually.
✅ Utility Costs – Some industrial spaces require higher electricity usage for heavy machinery.
✅ Tenant Improvement (TI) Costs – Who pays for custom buildouts?
Example of Unexpected Lease Costs:
A tenant signs a 5-year lease for 50,000 SF at $6 per SF, NNN lease.
Annual Rent = 50,000 x $6.00 = $300,000
However, after factoring in:
✅ NNN Costs ($2/SF) → $100,000 extra per year.
✅ Utilities & Maintenance → $50,000 additional annually.
🔹 Total Annual Cost: $450,000 (not $300,000 as originally expected).
💡 Pro Tip: Always request a full breakdown of lease costs before signing.
📖 Read more: "The Pros and Cons of Triple-Net (NNN) Leases for Industrial Tenants."
3. Overlooking Expansion & Exit Strategies
Many tenants sign leases without planning for growth or unexpected business changes.
🔹 Common Mistakes:
🔴 No Expansion Clause – If a tenant outgrows the space, they may be forced to break the lease early.
🔴 No Sublease Rights – If business slows down, they may be stuck paying for unused space.
🔴 Long-Term Commitment Without Flexibility – A 10-year lease may not align with company growth plans.
💡 Pro Tip:
✅ Negotiate an expansion clause to lease adjacent space if needed.
✅ Include a sublease clause in case the business needs to downsize.
✅ Consider a 5-year lease with renewal options instead of locking into a long-term deal.
📖 Read more: "How to Negotiate an Industrial Lease That Protects Your Business."
4. Failing to Conduct Property Due Diligence
Some tenants assume the landlord is responsible for everything—but due diligence is critical.
🔹 What to Inspect Before Leasing an Industrial Space:
✅ Zoning & Land Use Compliance – Is the property zoned for your business operations?
✅ Environmental Issues (Phase 1 & 2 Studies) – Is the site free of contamination?
✅ Roof, HVAC, and Electrical Systems – Older buildings may have hidden maintenance costs.
✅ Flood Zones & Natural Disaster Risks – Could insurance premiums be higher due to location?
Example:
A manufacturing tenant signs a 5-year lease without checking electrical capacity.
They later discover the facility lacks 3-phase power, costing $250,000 in unexpected upgrades.
💡 Pro Tip: Hire an industrial real estate specialist to conduct due diligence before signing.
📖 Read more: "Zoning Laws for Industrial Tenants: What You Need to Know."
5. Signing a Lease Without Negotiating Key Terms
Many tenants assume lease terms are non-negotiable—but they are.
🔹 Lease Terms You Should Always Negotiate:
✅ Base Rent & Rent Escalations – Ensure fair rental increases (2-3% per year max).
✅ NNN Cost Caps – Ask for a ceiling on property tax & maintenance increases.
✅ Tenant Improvement (TI) Allowance – Request landlord-funded renovations.
✅ Lease Renewal Options – Lock in favorable terms for future extensions.
Example:
A business signs a 10-year lease with 4% annual rent increases.
Over time, rent increases 48% instead of a more manageable 25% with a negotiated 2.5% escalation.
💡 Pro Tip: Work with an industrial leasing expert to negotiate favorable lease terms.
📖 Read more: "How to Negotiate an Industrial Lease That Protects Your Business."
6. Final Thoughts: How to Avoid Costly Leasing Mistakes
Before signing a lease, industrial tenants should:
✅Accurately calculate space needs to avoid overpaying.
✅Understand full lease costs, including NNN fees and operating expenses.
✅Negotiate flexibility (expansion clauses, subleasing options).
✅ Conduct due diligence to prevent unexpected expenses.
✅ Negotiate key lease terms to avoid excessive rent escalations.
📞 Need help securing the right industrial lease? Schedule a Consultation Today.
