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How to win the rental rate guessing game

How to win the rental rate guessing game

By: Forrest Blake | Senior Vice President | SVN Commercial | 310-850-2381| Lic # 01054174

Commercial real estate spins like the wheel on a gaming table! You see leasing signs prominently posted in front of every commercial building. Your last leasing broker just called for the first time in 3 years with his best guess rent number. The media continues to talk of a strong commercial real estate market and increasing rental rates. You get 10 calls each week from brokers saying they “know the best deal.” …And your landlord just called to say you don’t need a broker, and wants to make you a “below market” renewal proposal. Yeah, sure.

With each new turn, who can you truly rely upon?

Essentially, you can only trust a scientific approach that identifies the facts, one that demonstrates the logical, applicable rental rates and concession packages. Imagine a process that takes you through a scientific approach as it applies to the basic question of, “What is the right rental rate a tenant should pay?”

The question seems simple. But, to establish the best effective rental rate takes multiple steps of execution to arrive at a reasonable answer – a logical and acceptable answer. Someone who ‘quotes rates’ or makes comments to the effect that they ‘know very well’ what a commercial tenant should pay in a building, more often than not, discloses this information from a position of bias and with the goal of fulfilling their specific agenda – Getting the listing and/or making a commission.

Finding the effective rental rate is similar to a strategy game. It is a fluid process that changes every week as the available research data changes, sometimes even daily. The complex variables require you to study all of the minute details: what is happening with tenants on adjacent floors; the macro perspective of your landlord’s overall property portfolio; and, the current pressures placed on performance by his investors, among other concerns.

Without a target dollar-per-square-foot value strategy, the tenant or their representative will take a shot in the dark. If wrong, this guess could impact your profitability for 5, 7 or even 10 years.

In contrast, once your tenant broker establishes the effective rental rate, then creates a hypothesis through lengthy and tactical fact-based negotiations which will drive a below market deal. It takes honed skill and years of experience to achieve this goal.

Thus, the tenant’s profits increase as does the book value of their company. Every dollar saved actually represents 4 dollars that no longer need to be generated through top-line revenue. Making sure the negotiated rental rate is correct is imperative to business success.

Forrest Blake | Senior Vice President

SVN | Commercial – DTLA

800 South Figueroa Street, Suite 925, Los Angeles, CA 90017

Phone 213.618.4196 | Mobile 310.850.2381

forrest.blake@svn.com | www.svn.com

CalDRE# 01054174

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