What is Market Rental in Commercial or Retail Real Estate and How Can You Get It?

If you are involved in the management or the leasing of a commercial or retail property, you will frequently come across the need to assess market rentals and market rent reviews.  Here are some tips from our Newsletter….

Market rental structures are quite special and by definition are set by the trends of the market in today’s terms.  They are a reflection of the agreement between the landlord and or tenant in a particular location.

As you work on properties of different types and in different locations, understanding the market rent will be a critical component of your professional services.  Here are some ideas to help you with market rental assessment:

  1. When comparing properties and the rentals achieved in each, have due regard for the age of the property, the location of the tenancy, and the permitted use.  The zoning of the property in the local development plans will also have some impact on property usage and therefore rental.
  2. Be sensitive to the differences between net and gross rental in each case.  As part of that process you will need to understand exactly what outgoings are paid by the tenant under the lease conditions.  Different tenants will pay different outgoings based on lease conditions.  You will need to know the outgoings requirements and payments of the lease occupancy before the rental that you have identified is of any use to you.
  3. A rental will be determined on a particular date in accordance with the terms of a lease.  If it is a market rental, then the lease will say so.  It will give you a relevant date of calculation.  It should be noted that rent review structures made under some fixed percentage increase or fixed dollar amount are irrelevant to the establishment of a market rental.  That is why you need to know the terms and conditions of each rental that you identify.
  4. Inspect properties to identify the differences between premises and tenancy location.  A tenancy on a busy corner will achieve greater rental to a similar tenancy in a lesser location.
  5. Have due regard for the quality of the property and the status of its maintenance.  Some properties are poorly maintained by landlords and on that basis should be suitably discounted when it comes to market rental assessment.
  6. The tenancy that is the subject of the rent review will have specific terms and conditions in the lease that need to be respected and understood.  Review the lease before you undertake the gathering of information.  You will see that some of the lease clauses have critical dates that apply to the establishment of the market rental and the completion of any negotiation.  Those critical dates will need to be adhered to when it comes to the completion of the rental review to the market circumstances.

Different property types produce different levels of rental.  This is reason for you to be specializing in a particular area and with a particular property type.  You cannot know all of the terms and conditions and levels of rental that are achieved in every property type through your local region.  Become the specialist, and produce the information that the market requires.  Become a market rental specialist.

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