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The benefits of micro-units in commercial real estate




Cauble

Cauble

Although the pandemic severely impacted small business owners and landlords, it allowed them to tap into innovative, creative solutions to keep their clientele happy and themselves profitable. As a result, one of the many trends we saw evolve was the proliferation of micro-units in commercial real estate.

Like residential real estate, the cost of commercial space has risen dramatically in the past few years, in some cases, more than 50 percent in Nashville since the onset of COVID. I’ve heard many stories from entrepreneurs and small business owners who can’t get their feet off the ground because they simply can’t afford a space to operate. We’ve got to create affordable solutions for not only Nashville’s housing market, but also its commercial real estate market, as well.

Focusing on micro-units in office, restaurant and retail real estate can make all the difference for a business in an increasingly expensive market.

What are micro-units for commercial real estate?

 

 

Not familiar with micro-units? To keep it simple, they are any type of commercial space typically smaller than the market average. For example, in Nashville, 500 square feet could be considered a micro-unit, while in New York City, it might be closer to around half of that size. Depending on the traditional standards, these smaller spaces can lease around 20 to 30 percent lower than the conventional monthly rent, but at very high-value ratios (rent per square foot). With a smaller footprint comes lower overall rent expenses, making these units far more affordable for tenants.

For the food and beverage industry specifically, takeout orders have been more popular than ever since the pandemic started, and chefs across the country are adapting to this method. The Wash is an upcoming project of mine set to open in East Nashville in 2022 (a car wash converted into six micro-restaurants, each around 380 square feet.) This micro-restaurant incubator will provide alternative options to chefs and restaurant owners who may not want to (or be able to) invest heavily in a permanent, conventional space.

The benefits of micro-units

Smaller, temporary opportunities can help entrepreneurs and smaller businesses by giving them a chance to launch their brand affordably and sustainably. They allow startups and even established companies to test new products or concepts and experiment without breaking the bank. We are constantly hearing the term “location is key,” and these smaller units help brands get into a prime space that they may not be able to afford otherwise.

Micro commercial units also do not require government involvement or the need for tax breaks or assistance since they will rent for often above-market rates on a per-square-foot basis. For developers, I recommend getting into this type of project sooner rather than later.

How to create and find these spaces

The leading edge of the micro-unit trend is to push boundaries and help you think outside the box. You’re taking a small space and transforming it into an operational business. You will need to seek a crafty engineer and a designer who understands multifunctional design. The smaller unit size also means less equipment and furniture to buy, which is another reason why coming up with unique ways to convert your space into a micro-unit will benefit your wallet in the long run.

People say bigger is better, but that’s not always the case in commercial real estate. Micro-units are money-making machines that more investors should be capitalizing on, especially while they are still on the frontline of a newer trend.

Tyler Cauble is the founder and president of The Cauble Group, Hamilton Development and Parasol Property Management. A native Nashvillian, Cauble is the author of the book “Open for Business: The Insider’s Guide to Leasing Commercial Real Estate.”

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