Does the business pay too much rent?

professional profile

September 08, 2021

by a professional from Bishop's University in Moncton, NB, Canada

Landlord wants more, what does that mean for me? Zafer says that his rent sometimes seems high, sometimes seems low. How can you tell if it’s the right price? What does it mean if local rents are going up? What if you own and you are your own landlord? Watch the video and I’ll tell you what I look for when analyzing a business’ expenses. Watch: https://youtu.be/FVuvjpIBd60



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Reply by a searcher
from University of Pennsylvania in Portland, OR, USA
David - This is great content! Thanks for producing. I would add a few things to think about. What is the structure of the lease (full service, NNN, base year)? This will help the occupier understand what their potential total cost will be per year. As you mentioned, the Occupancy Cost Ratio of the business is a great benchmark. You should be able to find OCR's for any type of business online. If you can't, call up a local real estate tenant broker. They will know these ratios, but should also understand what is "market" for your region. The best part of using a tenant broker is that they are typically paid by the Landlord. So, even if you have two years on your existing lease brokers understand real estate is a long-term play, so they should be willing to help you now for future business. Another way to think about this, 3-5% annual rent bumps are pretty standard, with the higher end of the range being for red hot markets. It is also common to see 10% rent bumps every 5 years in longer retail leases. Anything above these numbers is most likely very aggressive unless the rent had a historically locked-in number for a number of years. This typically happens in markets that have gentrified or the highest and best use of the sub-market has changed. For example, when industrial markets become more upscale (Meatpacking district in NYC). Finally, any time a building changes hands you should expect the new buyer is going to increase rents. It is how they will find yield in the building. Sometimes this means they plans to renovate the building or increase services in the building, which should lead to higher rents. Other times, it means they think the rents are below market and they can either increase rents of existing tenants or go find new tenants at higher rates.
commentor profile
Reply by a professional
from Bishop's University in Moncton, NB, Canada
Great points Mark
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