What is Market Rental in Commercial or Retail Real Estate and How Can You Get It?
If you manage or lease a commercial or retail property, you frequently need to assess market rentals and market rent reviews. The property and location’s market rental must be determined.
By definition, today’s market trends shape market rental structures, making them unique. They reflect the agreement between the landlord and tenant in a particular location for a given particular property, the premises, and the terms of the lease. Therefore, market rentals can fluctuate depending on occupancy and property characteristics.
Knowing Current Rents
Understanding the market rent will be a critical component of your professional services as you work on properties of different types and locations. You can and should track the market rentals you encounter in your job and your property market activities.
Information is valuable to agents as they service investors, and those market rents impact so many property investment decisions taken by investors today. Where can you find the facts about leasing and market rentals for any property situation? Research is required. Commonly, you will come across the lease details in or from:
- Media releases
- Recent transactions by property type
- Lease deals in a property type or precinct
- Tenancy schedules
- Properties under management
- Property valuers, etc
Rental Types
Asking questions about rentals will give you more facts to explore and tabulate. You have different types of rents to identify based on the property and the location. You need to understand the various types of rentals, as the rates vary depending on the property and location.
- Gross rent
- Net rent
- Face rent
- Effective rent
- Lease incentives
- Outgoings payable
Most experienced commercial real estate agents keep a file for collating achieved or known rentals in commercial properties by property type, location, lease term, improvements, incentives provided, occupancy quality, and occupancy size. These variables will impact all rental types, so ask the questions and look for the differences.
Assessing Market Rents
Here are some ideas to help you with market rental assessment:
1: Property Condition and Use
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 impact the property usage and therefore rental.
2: Gross and Net Rents Plus Financials
Be sensitive to the differences between net and gross rental in each case. As part of that process, you will need to understand precisely what outgoings the tenant pays under the lease conditions. Different tenants will pay different outgoings based on lease conditions and property use. You will need to know the outgoings amounts, requirements, and payments of the property lease occupancy before the rental you have identified is of any use.
3: How was the rent set?
The terms of a lease determine a rental on a specific date. If it is a market rental, the lease will say so, giving you a relevant date of calculation.
It should be noted that rent review structures based on a fixed percentage increase or fixed dollar amount are not relevant to establishing a market rental. That is why you need to know the terms and conditions of each rental you identify. Did a structured rent review set the rent, or was it the result of a genuine agreement and negotiation between the parties?
4: Improvements, Premises, and Location Facts
Inspect any and all properties to identify the differences between improvements, premises, and tenancy location. A tenancy on a busy corner in a prime location will achieve a higher rental rate than a similar tenancy in a lesser location.
Therefore, conduct your location assessment by physically inspecting the property and the surrounding area. As part of that, look at other nearby properties of similar type. Ask about vacancy factors and trends in case they change and could impact any current or future lease negotiations.
5: Property Maintenance and Condition
Be mindful of property quality and maintenance. Landlords often maintain some properties poorly, which warrants a suitable discount in market rental assessment.
6: Lease terms and conditions Vary
The lease for the tenancy under rent review will contain specific terms and conditions you must respect and understand. Review the lease before you gather information.
While properties may be similar for comparison purposes, leases may not be so. Read the leases from any comparable occupancy situations.
7: Critical Dates and Lease Covenants
You will see that some of the lease clauses have critical dates for establishing the market rental and completing any negotiation. You must adhere to these essential dates to complete the rental review in accordance with the market circumstances.
8: Property Types and Precinct Facts
Different property types produce different rental levels. This is why you should specialize in a particular area and with a specific type of property. You cannot know all of the terms and conditions and rental levels achieved in every property type through your local region.
Becoming a Lease Negotiation Specialist
Become the specialist and produce the market-required rental information. Get to know the people, properties, streets, precincts, and supply and demand factors. Any lease negotiation will reflect the landlord and tenant’s requirements in the final deal. Determine what that is and make your notes for future reference.
So, what is the message for you as a leasing agent specialising in rents for a property type? You can become a market rental specialist and negotiate all your leases professionally with landlords and tenants. Get to know all the local buildings, vacancies, rental rates, and the pressures of the local property market.
