Commercial rent increases

[Fernando]

Potential restaurant tenant wants a 10 year lease.
From your recent experience in viewing leases, would 4% increase a year be reasonable for next 10 years for a medium size restaurant?

 

[George Hatch]

Maybe half that. They have to sell a lot of plates to pay for a 2500sf restaurant space in a multi-tenant retail.

 

[Fernando]

Maybe half that. They have to sell a lot of plates to pay for a 2500sf restaurant space in a multi-tenant retail.

Ten years is a long time. Set terms benefit tenants when market rents go up.
In 10 years, economy should be doing much better than now.

 

[Gobears81]

I'm not usually seeing annual increases above 3% unless the beginning rents were known by both parties to be below market. You could tie the rent increases to CPI

 

[CCAAMO]

Sounds like your asking for a free appraisal

 

[Fernando]

I'm not usually seeing annual increases above 3% unless the beginning rents were known by both parties to be below market. You could tie the rent increases to CPI

Thanks for your feedback. I thought asking 4% was too low.
Then I should be satisfied if potential tenant agrees to 4%/year for 10 years.
With 10 year Treasuries over 4%, I thought it would be reasonable. Don't other lessors look at long term bond rates in their future rent increases?

 

[Fernando]

Prospective tenant is asking 2% annual increase. WTF.
That's not keeping up with inflation.

 

[Terrel L. Shields]

Prospective tenant is asking 2% annual increase. WTF.

How much vacancy will result in your return being less than inflation? 1 month vacant in a year is much worse and by squeezing every last nickel out of a renter you are almost certainly insuring that they will bail out at the first sign of cheaper rents elsewhere or go broke and leave. Can't get blood from a turnip.

 

[George Hatch]

What is the current vacancy rate for similar multi-tenant retail units in this area? Retail rents for avg locations have not come anywhere close to keeping pace with the CPI. The restaurant business itself is already taking a beating over payroll inflation and food inflation.

Commercial isn't like residential. You can't always just lower the rent and find a tenant. Businesses have to be economically viable in order to pay the rent. If they're not breaking even the first expense to not get paid is the rent.

 

[sputnam]

Sounds like your asking for a free appraisal

Wait.... What? I thought 'Nando was the best appraiser ever.