How do you develop accurate lease rates for commercial properties using market research?

2 Data sources and tools

Conducting effective market research requires access to reliable and relevant data sources and tools. CoStar is a leading online platform that provides comprehensive and updated data on commercial properties. LoopNet is a popular online marketplace for searching and comparing commercial properties. Reis is a subscription-based service that offers detailed and timely data and analysis on commercial property markets. Additionally, local brokers can provide valuable insights on current and projected market conditions, while property owners can offer firsthand information on lease rates, terms, and incentives. All of these resources can help you collect and process the information you need for successful market research.

3 Lease rate calculation

Once you have gathered and analyzed the data from your market research, you can use it to calculate the lease rate for your commercial property. The lease rate is typically expressed as a dollar amount per square foot per year or per month. There are various methods for calculating the lease rate, such as the market-based method, the cost-based method, and the income-based method. The market-based method involves comparing your property with similar ones in the same market that have recently been leased or are currently available for lease. The cost-based method requires calculating the total cost of owning and operating your property, including mortgage payments, taxes, insurance, maintenance, utilities, and management fees. The income-based method entails estimating the potential income that your property can generate based on expected occupancy, vacancy, and rent growth rates. Utilizing these methods can help you determine a lease rate that is suitable for your property.

4 Lease rate optimization

After calculating the lease rate for your commercial property, you can optimize it to maximize your revenue and occupancy. To do this, you need to consider tenant mix, market cycles, and tenant retention. Tenant mix refers to the diversity and compatibility of tenants in your property or portfolio, which can enhance its attractiveness and value. Market cycles refer to fluctuations in demand and supply of commercial properties over time, which affect lease rates and vacancy rates. Tenant retention is the ability to keep existing tenants in your property or portfolio, reducing vacancy and marketing costs. Market research can help you identify target tenants that best suit your property type, location, and strategy; monitor changes in market cycles; and understand tenants' needs and expectations. Additionally, offering competitive lease terms, incentives, rent discounts, or improvement allowances can encourage tenant retention.

6 Here’s what else to consider

This is a space to share examples, stories, or insights that don’t fit into any of the previous sections. What else would you like to add?