Selecting the Right Tenants

One of the biggest mistakes landlords make in leasing out their building is being too desperate in the attempt to lease out the building.  When the building sits vacant and there is a mortgage payment coming, it is tempting to lease out the space to whoever would come along.  However, time has proven again and again that it is worth the wait to find the right tenant, because having the wrong tenants can cost you dearly.

In commercial property, the value of your building is directly tied to the income it generates, and the income it generates is directly tied to the lease.  In other words, the lease is the most important document a banker or buyer would look at when he or she determines the value of your building. 

The length of the lease is crucial, because it is an indication of the strength of your cash flow.  For smaller spaces, it is common to see 5-year leases with a 5-year option for renewal.  For larger spaces occupied by big box retailers, it is not uncommon to see 10-to-20-year leases. 

The type of business you lease to is also important.  For instance, you can typically demand higher rents for retail tenants than service businesses such as auto repair shops. 

The size of the space should be taken into consideration as well.  If you have a large space that can only be used by an industrial tenant (when industrial tenants typically demand low rents), you can subdivide the space and lease out each space to smaller industrial tenants, or even office and retail tenants.  Remember, few businesses can afford or need a large space, but lots of businesses need smaller spaces.  By subdividing a large space into smaller spaces, you increase the market of tenants that need your space, which drives up the rent per square foot (or rent per cubic foot in the case of industrial tenants). 

The commercial agents at Advantage Commercial Brokers have years of experience leasing out commercial property, and are happy to provide guidance as to the best strategy to lease out your building.