There’s no question that the commercial real estate market has weathered significant ups and downs over the past several years. Oftentimes, upping the rent on a property seems like the most obvious way to account for challenging marketplace conditions. Yet, inflating commercial property rents is a risk that isn’t always worth taking.
Rental rate inflation above the market rate is always a risky business. But it is often a particularly risky proposition when an anchor tenant is either negotiating an initial rate or is looking to renegotiate a rate that has been inflated historically.
It’s all about risk vs. reward
Entering into a commercial lease with a tenant involves a measure of trust. On the one hand, you need to be able to keep your business afloat during challenging times.
On the other hand, if your tenant believes that you’re inflating their rent to an unreasonable extent, they may understandably feel like you’re taking advantage of their trust and utilization of your property.
The risk vs. reward calculus in this scenario can impact more than just your company’s finances. It can affect your company’s reputation. If your tenants enjoy working with your company and believe that it negotiates rates fairly, those tenants may recommend your services to other potential tenants.
If your tenants have concerns that their rental rates are always inflated but that they’re “stuck” with your company because they don’t want to risk losing customers by moving to new locations, they may badmouth your company to other potential tenants.
Get help with your commercial real estate investments
Carefully considering the broader risks vs. rewards of inflating commercial real estate rental rates is consequential business. Researching your options and consulting with professionals may be in your company’s best interests if you’re not sure of which direction to take at any given time.