Investors: How much rent is right for your building?
Charging the right amount of rent is imperative if you want to get the best return on your commercial property.
Charge too much and you risk your property languishing empty on the market.
Charge too little and you not only reduce your return on investment but also potentially devalue your property.
How much is too much rent?
Tom Ryan, Sales & Leasing Executive at Allard Shelton, is an expert at getting the balance right between too little and too much.
First of all, Ryan says you need to understand how commercial rent is calculated. Unlike residential properties, “rental for a commercial property is always calculated on a rate per square metre”.
“Variations in the rate per metre are influenced by a number of factors, the most important include location, quality/age of building, services, surrounding tenants, and size,” he says.
Rent for a commercial property is always calculated on a rate per square metre.
A new building in a fantastic location, next to a high value tenant, will cost more to rent than a property of exactly the same size in a less attractive location. Understanding the market benefits, such as location, of a property (and what they are worth to potential tenants) is critical in knowing what is a fair rental rate for your property.
Once you have taken into account all the key factors mentioned above, Ryan says “a fair market rent is then determined by reviewing recent leasing transactions within the corresponding market”.
Check out your competitors
“Comparing the subject vacancy against recent transactions and taking in to consideration the factors affecting rental you can then determine a fair asking rental.”
Online search engines are a great way to get a sense of current rental rates for similar properties. You can also ask agents or, ideally, other landlords in your area.
“Determining a fair market rental of any property is imperative, of course we want to maximise the return for our client,” Ryan says.
However, he also warns: “If you overstate the rent you run the risk of the property sitting on the market for an extended period or, alternatively, you can underlet the property, both of which can decrease the property’s value or return to the owner.”