When touring space with a tenant sometimes it appears as if the space has been vacant for a long period of time. When this happens, some tenants think there is an opportunity to take advantage of the landlord’s unfortunate situation and get a low rental rate.
While this appears to be logical, in fact the sophisticated landlord isn’t going to make a desperate decision that could reduce the value of their investment significantly. It is often not in the landlord’s best interests to reduce the rental rate for short term cash flow.
Why Won’t The Landlord Reduce Rent On A Vacant Space?
- The value of investment property is the income stream the higher the rent the more valuable the property will be to an investor. A $1 dollar reduction in the rental rate could be equal to a $12.5 per foot reduction in value to the entire property with an 8% capitalization rate.
- Some landlords don’t require the immediate cash flow and they are willing to wait for the perfect tenant.
- The landlords lending agreement with their mortgagor requires that they achieve an agreed upon rental rate that conforms with the proforma statement.
- The property could be a newly purchased investment that is being repositioned to have higher rental rates to increase the properties value.
- The property could either about to be foreclosed upon or is in receivership with the lender who will not reduce the rent because it reduces the sale value of the asset.
- Landlords are people just like tenants. They have a negative reaction when they sense someone is trying to take advantage of them and they walk away from the negotiation.
There are other reasons but these are the basic ones that I have encountered over the years. The best strategy to visit the space and don’t make any comments about how long it mat have been vacant. If you think about it. The landlord knows it has been vacant a long time. They also know that they could have leased it at any time to a tenant if they offered a below market rental rate. The clearly have chosen not to reduce rent for some reason.
The prudent negotiator will be observant and then do some research to determine why the space has been vacant. Clearly their is a reason and once you understand the obstacle work to reduce it to the tenant’s advantage.
The best strategy is towards a lease transaction that will reasonably reduce rent for the tenant but also give the ownership what they are needing. In most cases they want to increase the value of their investment. This can be accomplished many ways and a qualified tenant representation broker can help the tenant achieve this goal.
I think poking a rattle snake with a stick will not get the desired results a hiker would want when they are on the trail. Likewise pointing out to a landlord that they have had a vacant space for a long time. Then asking for a below market rental rate may not give the tenant the results they are looking for. Strategic negotiations will get the tenant the results they desire.