When renting retail space, you always pay a combination of fixed and variable costs. The fixed costs consist of the base rent you pay monthly, while variable costs such as service charges, turnover-related rent, and additional expenses can vary significantly by location and situation. For starting and growing retailers, it is crucial to understand this distinction before signing a lease. The sections below answer the most frequently asked questions about the costs of renting retail space.
What exactly falls under fixed rental costs for retail space?
The fixed costs when renting retail space are the costs you pay each period, regardless of your turnover or usage. The most important fixed cost item is the base rent: a pre-agreed amount per month or quarter, expressed in euros per square metre per year. In addition, fixed service charges and any fixed contributions to a shopping centre fund also fall under fixed costs.
The base rent is the foundation of any lease for retail space. This price is determined based on location, floor area, type of retail area, and current market conditions. In practice, the rent is indexed annually based on the consumer price index (CPI), which means the rent rises slightly each year. This indexation mechanism is always stated in the contract and is a fixed component of the total rental costs for retail space.
In addition to the rent itself, as a tenant you also pay VAT on the rent, unless an exempt lease applies. In most commercial leases for retail space, the rent is subject to 21% VAT, which has a significant impact on the total monthly cost. This is a component of the fixed costs that beginning retailers regularly overlook.
What are service charges and why do they vary by location?
Service charges for retail space are costs that a landlord passes on for shared facilities and services, such as cleaning of common areas, security, corridor lighting, and maintenance of installations. They vary by location because the service package and quality of the property differ significantly between a standalone retail unit and a large shopping centre.
In a standalone retail unit on a high street, service charges are often limited or even absent. In shopping centres, they are generally substantial, because the landlord incurs costs for shared spaces, parking garages, marketing activities, and management. Service charges are settled annually based on actual costs, with a monthly advance payment. It is common for landlords to provide an annual statement showing whether you have paid too much or too little.
An important point to note: service charges for retail space are not always transparently itemised in the lease. Always request a historical overview of the service charge settlements from previous years before signing. This way you avoid surprises at the annual reconciliation.
How does turnover-related rent work for retail space?
Turnover-related rent is a rental arrangement in which part of the rent is linked to the turnover you achieve as a retailer in the space. Typically, you pay a fixed base rent, supplemented by a percentage of turnover above a certain threshold. This structure is popular with shopping centres and landlords who want to benefit from strong retail performance.
In practice, it works as follows: you pay a base rent that is lower than the market-rate rent. Only when your turnover exceeds a pre-determined threshold do you pay a percentage of the excess to the landlord. This percentage is typically between 5% and 10% of the turnover above the threshold, but the exact terms are always negotiable.
For starting retailers, turnover-related rent can be attractive because the financial risk during the initial phase is lower. The downside is that when successful, you pay more than would be the case with a fixed rent. Always have the structure of such a contract assessed by a specialist who knows the market-standard ratios.
Which additional costs are often overlooked?
In addition to the base rent and service charges, there are several additional costs when renting retail space that are regularly underestimated or forgotten. The most common are the costs for fit-out and renovation, the security deposit, marketing contributions to a shopping centre, and the costs for utilities not included in the service charges.
- Security deposit: Landlords typically require a deposit of three to six months’ rent. This is a significant liquidity requirement at the start of the lease.
- Fit-out costs: Most retail spaces are delivered as a shell. The costs for flooring, lighting, fit-out, and any renovations are entirely at the tenant’s expense.
- Marketing fund: In shopping centres, tenants often contribute to joint marketing activities. This amount is separate from the service charges and varies by location.
- Insurance: The landlord insures the shell; the inventory and business liability are the tenant’s responsibility.
- Municipal taxes: Think of property tax (OZB) for users, advertising tax, and precario tax for signage on the facade or pavement.
Those seeking guidance when renting retail space benefit from having all additional cost items made transparent in advance, so that the total operating costs can be budgeted realistically.
What is a market-rate rent per m² in the Netherlands?
A market-rate rent per m² for retail space in the Netherlands varies significantly by city, street, and location type. In the busiest shopping streets of Amsterdam or Utrecht, rents at prime locations are considerably higher than in the city centre of a mid-sized city such as Groningen or Tilburg. A general bandwidth is difficult to provide without looking at specific location data.
The rent is determined by multiple factors: footfall, visibility, proximity to anchor tenants, the type of retail area, and current demand from retailers. A prime A1 location in a major city can reach hundreds of euros per m² per year, while a secondary location in a smaller city sometimes falls below fifty euros per m² per year.
KroesePaternotte holds lease data covering virtually the entire Dutch retail market, going back to 1984. This historical database makes it possible to assess, street by street and city by city, whether a requested rent is in line with the market. That is precisely the information you need before making an offer or signing a contract. Through the current retail listings you get a first impression of price levels per location.
How do you negotiate rental costs as a new retail tenant?
As a new retail tenant, you negotiate rental costs effectively by working from market knowledge, a clear tenant profile, and concrete counter-proposals. Landlords are willing to negotiate on the rent, the rent-free period, the indexation, the security deposit, and the duration of the contract. Those who do not negotiate almost always pay the asking price.
Where is there the most room for negotiation?
The most room is not always in the base rent itself, but in the ancillary conditions. A rent-free period of two to six months is common with a new lease, especially if you as the tenant bear the fit-out costs yourself. In addition, you can negotiate a break option after three years, a lower initial indexation, or a landlord contribution to the renovation costs.
What do you need to negotiate from a strong position?
A strong negotiating position starts with insight into the market-rate rent for comparable locations. Without that reference data, you negotiate on gut feeling, which rarely works in your favour. A specialised retail agent for retail space has that data and negotiates on your behalf based on current market figures, not gut instinct.
KroesePaternotte guides retailers of every size in finding the right space and conducting negotiations. From a first store opening to expanding to a new city: the network and market data make the difference between a reasonable and an optimal lease. Contact us to discuss what is possible for your specific situation.
Finally: always have a lease for retail space reviewed before signing. The legal conditions regarding notice periods, subletting restrictions, and change of use can have major consequences for the flexibility of your business. KroesePaternotte, as a specialised retail property advisor, helps you not only with the search, but also with understanding and negotiating all contractual and financial conditions.
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