To be successful in this current commercial real estate market, you have to believe that there is always an opportunity in adversity.
Many prospective tenants can’t find an area to open a new operation which doesn’t have significant competition. Other prospective tenants can’t find suitable space, or available space with reasonable lease terms and conditions.
Tenants must have realistic expectations. Tenants can’t approach this real estate market with the same perspective as was appropriate even five years ago. If a tenant has realistic expectations, and uses an approach geared to the current circumstances, this is actually an excellent market. You have to work with the system, not against it.
First: less real estate is available for lease in many areas now than there has been for many years. This is good news. The low vacancy rate reflects a strong economy – the market is strong. Second, with no space obviously available, once you are established, your market share is protected. Consider changing your approach to site selection by changing what type of real estate you are looking for. Consider buying and re-developing a property, or negotiating with an existing landlord for custom built space. Consider subleasing space within an existing tenancy, which could be a large retailer or a large physician’s clinic.
Second: the real estate industry has changed. It may appear that there are no spaces for lease, but this is often an illusion created by using the wrong search technique. First, many available locations are not listed through typical brokerage houses. In addition to MLS, tenants now have to contact landlords directly, and review on-line sources such as Space 4 Lease or Kijjii. Secondly, tenants looking for properties through brokers may be directed towards a subset of the total number of properties available, which subset pays a commission. You may not be shown properties that don’t pay a commission. Third, know that in 2015 you are an individual business in a world dominated by chains and franchises, most of which have in house professional real estate professionals and negotiating leverage to deal with large landlords in this leasing environment. You need to hire appropriate professional representation to level the playing field.
Third: there is more competition. It seems there is a new competition on every corner. The upside is that the market is stronger than it was 10 years ago. This means a bigger market for your services which is positive. On the other hand, know that landlords induce bidding between prospective tenants for their space. Develop and protect your customer base through superior operations and orient your location correctly through internet presence, signage, parking and geographic location.
Fourth: rental costs are much higher. The increased cost of both construction, realty tax, and the value of real property as an investment has increased rental rates dramatically. What was $30 per square foot 10 years ago is now $45 per square foot. But remember that sale volume has increased significantly over the same period of time. What’s really important here is that your ratio of sale to rent is acceptable; you can afford to pay a high rental rate if your sale is high. Savvy tenants are leasing and building in smaller space, resulting in a lower effective rental rate. Take advantage of the strong economy!
Fifth: lease negotiations and management take much longer to complete. Be patient. Large institutional landlords have the tenancy arrangements approved by several parties including the leasing manager, the asset manager, and their legal section. The wait for a signing authority to become available may take a period of several months. Secondly, creating a “dream location” for your new practice may take a period of years if the process is to buy and re-develop, or to have space custom built because of the number of required steps and parties involved.
Sixth: real estate negotiations and lease management take far more effort. The days of quickly negotiating a tenancy arrangement are over. Now, the administrative time to deal with tenancy documents far exceeds the actual negotiating time. Administration involves circulation by email to a team of highly trained and sophisticated legal, economic and real estate professionals. A lease document negotiation is a progressive process, not an instantaneous scheduled treatment. This progressive process may take several months to complete. Tenants who push and agitate just wear themselves out, which is exactly the negotiating leverage landlords are enjoying.
My best advice is to:
1. Look forward to participating in the current market.
2. Hire an experienced, cost effective real estate professional to represent your interests. The benefit will far exceed the cost.
3. Be patient; your perfect location does exist but it may take a period of years before you take possession.
4. Be prepared to consider alternatives. If your current approach is not working, change your approach.
5. Have realistic expectations. Note that the successful established practices started where you are now.