Is my business paying too much rent?
As a business owner, reviewing your processes to improve your profits will be at the forefront of your priorities. However, through all the business assessments, rent is so often overlooked.
Why? Many business owners or managers don’t understand how to properly assess their tenancy arrangement and rent, track their obligations towards tenancy outgoings, along with their rights and entitlements.
Now is the time to review your situation. Here’s how.
How do you work out if you’re paying too much rent?
Understand your rent rate
A number of factors will determine your rent. The foundation of rent in commercial property is based on the rate per square metre of your tenancy or building, meaning larger spaces will demand a higher annual rental amount. But what will influence the rental rate per square metre? This will vary from asset class to asset class, but we summarise some of these factors below.
Firstly, the location of your property, its proximity to other amenities, and the level of foot traffic nearby will have a major impact on rental rate if you’re considering a retail shop or food and beverage outlet. Alternatively, an industrial asset strategically located close to major transport routes, or specific features such as gantry cranes or high-power supply will attract higher rental rates. The surrounding tenants and general popularity of the area may also have an impact.
Next, the condition and age of the property itself as well as its included assets are vital. Well maintained properties with modern, functioning and long-lasting technology will demand a more expensive rate compared to run-down buildings with poor features. The features and intended use of the premises, including the types of facilities and services included (such as storage or parking space) will also impact the rent.
The overarching lease terms can also influence your rent. A short-term lease may demand a higher rental rate to compensate for the lack of security on occupancy, while long-term leases could offer a lower rate. Leases may also offer other forms of incentives to off-set a higher rate.
Most importantly, rent fluctuations will arise from the level of competition in the local market. A highly competitive market will increase your rent, while a lack of demand should give you an advantage. Therefore, understanding the current trends and the degree of impact they should have on your rent is essential.
Research and compare
Now that you understand what goes into calculating your rent, the best way to know whether this figure is fair is by comparing similar properties to yours and other properties in your area. Commercial property tenants now have easy access to a wealth of online property information to help identify the current trends and whether you’re in line with them.
You’ll also find great value in reaching out to neighbouring tenants and local real estate agents who are familiar with surrounding properties and the local market.
But this shouldn’t be a once off Google search or conversation. Continuous research over a long period of time is important to allow you to understand the fluctuating market conditions and rent prices, as well as what types of properties are on hot demand. You may find that if there is a large appeal for your type of property, your landlord will insist on a higher rental rate and reduced incentives.
When should you make this review?
Many business owners will leave this critical task until their lease is about to expire, but without time and proper planning you can put yourself into a corner with little capacity for negotiation. Ideally, you should be conducting annual reviews, particularly as many of the factors and conditions detailed above will continually change.
A review must take place at least 12 months away from lease renewal. This will give you ample time to determine your course of action – whether you hope to renegotiate with your landlord or relocate.
Who should you team up with?
If you’re unsure about your rent, tenancy agreement or generally apprehensive about approaching your landlord, it is key to seek expert advice.
A tenant representative can help. It is their job to understand the latest market data, research and trends, including rental rates, so you can feel safe knowing you’re receiving the best advice possible according to your needs. Most importantly, a tenant representative works for you – they will know what you’re entitled to as a tenant, and help you achieve it.
Contact us to discuss your needs. No obligations.
Managing Director, Broadway Property
Director, Broadway Property