As a real estate investor, setting the right rental value for your Southern California commercial property is an important part of establishing your earning potential. The rent you set needs to be reasonable and competitive so that you attract and retain the best commercial tenants. It also has to be profitable for you.
In the Los Angeles rental market, commercial properties are in high demand. If you want to be on the top of every tenant’s list of potential properties, it’s essential to understand how to determine the right rental value for your property. You absolutely don’t want to leave money on the table, but you also don’t want an empty commercial property with a growing vacancy loss.
Bell Properties Commercial Real Estate is here to share some insights and tips to help you set the correct rental price for your commercial property in Los Angeles.
Evaluate Your Location and Neighborhood
The location of your commercial property plays a crucial role in determining its rental value. This is a common understanding in real estate: location matters.
To effectively understand whether your location helps or hurts your rental value, you need to know the characteristics of the neighborhood. The following factors will impact the value of your location:
Traffic patterns and flow
Demographics of the neighborhood
Nearby amenities
Neighboring businesses
Think about this example: if your retail property is located in a busy commercial area surrounded by other shops and restaurants and successful businesses, you are likely able to charge a higher rent. Your potential retail tenants will want to set up shop there. If your property is in a remote strip mall, however, where many businesses and shops have recently vacated, you might have to drop what you charge in order to attract any tenants at all.
Measure and Consider the Usable Square Footage
The usable square footage of a commercial property is the space that can be used for your tenant’s specific operations. The ideal amount will depend on what each tenant is looking for. It will also depend on the type of commercial property you’re renting out. If you have an industrial space, your tenants looking for a warehouse will need enough square footage to accommodate whatever equipment and operations they have. A commercial tenant looking for office space will want enough square footage to accommodate their current employees and business while leaving room for potential growth and new hiring.
It’s important that you understand the usable square footage of your property so you can be sure you’re not overcharging or undercharging your tenants. Many commercial owners will measure the space themselves, but it might be worth it to hire an expert who can measure for you and validate how much space you actually have. This will be a huge selling point when you’re marketing your commercial space, and it will also impact what you can charge.
Follow the Los Angeles Commercial Rental Market Trends
The market always drives what you can charge, whether you’re selling a home, renting out a home, or renting out a commercial property like yours. Make it a point to follow the market and get to know how the rental values shift and what your competition is charging.
The real estate market in Los Angeles has always been competitive, it’s always been highly priced, and it’s always been dynamic. You need to know the market when you’re establishing your rental value.
If you’re renting out your own commercial property, it will behoove you to get familiar with average rents for similar commercial properties to yours in your neighborhood. Track the changes that show up in supply, demand and pricing. When you do this, you’ll know when to increase or lower your asking price to remain competitive.
Commercial leases often cover a longer period of time than residential leases. So, when you’re establishing your own rent, you want to consider how rents might rise or fall over the next year or two. Make sure you leave yourself some flexibility to adjust to the market.
Shorter lease terms tend to drive turnover higher, unless you have a tenant who is looking to commit to only a year or two in one space. You can probably set a higher rental amount if you’re drafting a lease for less than five years. You don’t know how the market will look in five years. So, allowing a tenant to lock in today’s rent for five years or longer can be attractive to them, so they know what they’ll be paying. Like you, commercial tenants are budgeting for their business, and the fewer variable costs that exist, the better they can plan.
Property Age and Condition Count in Pricing
Consider the condition and age of your property when you’re setting the price. The overall condition and age will impact what tenants are willing to pay in order to move in and run their own business from that space. If you have an old or poorly maintained space, you may need to drop your rents a bit in order to attract tenants who are willing to rent it. However, if your property is new, well-maintained, and has modern features and upgrades, you can easily charge a higher rent.
Again, the type of commercial property you’re renting out will also count when we’re thinking about age and condition. An industrial company that makes parts might need especially good lighting. A high-end retail tenant might be looking for specific flooring and renovations and amenities that will match their brand.
Decide whether you want to rent out your property as-is or if you’re willing to make some renovations and upgrades in order to raise your rents. You might not be interested in making a lot of upgrades before you rent a property out. You can offer it for rent in the condition that it is currently in, and then agree to make some upgrades and updates according to your eventual tenant’s specifications. This can also be a selling point when tenants are considering where to rent. An office or a retail operation might have some ideas about how they want the space to look. Upgrading before you begin marketing your property may result in wasted money, because you’ll only be agreeing to additional changes for your tenant.
However, offering a property in stellar condition without a lot of changes needed can also be attractive to certain tenants. They might still want some changes made; a different paint color, for example, or additional walls to create private offices or conference rooms, but they’ll be immediately attracted to the property you’re offering, and thus willing to pay higher rents.
Consider What You’re Including in Your Rental Amount
Commercial leases are structured in a number of different ways.
The rent you ask will depend on what’s included. If you’re charging only a base rent and everything else is extra, you’ll have to lower the amount that you charge on a monthly basis. If you include utilities, maintenance, and services such as pest control, cleaning, and landscaping, you can raise that rent to a much higher level in order to cover everything that you provide.
The location and property type will drive whether you offer tenants an all-inclusive rent or simply one smaller rental price, leaving them to pay for their own repairs, electricity, water, and other services.
Talk to a Los Angeles Property Manager Specializing in Southern California Commercial Property Management
Always seek advice from a professional property manager when you’re setting the rental price for your property. With the help of a Southern California commercial property management partnership, you can leverage valuable insights and resources. Property managers have access to the latest and most accurate data. Bell Properties Commercial Real Estate can use the technology we have as well as our experience in the local market to determine the optimum rental price for your commercial property.
Property managers will analyze recent and historical market data, inspect your property so we know what you have to offer, and propose improvements that may help you increase your rental value.
Another benefit to working with a property manager to price your property is that you can establish a relationship that also leads to better outcomes during the leasing and management phase of your investment. Property managers can help you market and advertise your commercial rental space. You’ll get some help finding reliable tenants who will contribute to higher profits.
Pricing through a property manager will help you establish a more accurate, competitive, and profitable rental value for your Los Angeles commercial property.
Determining the rental value of your property is a vital step in ensuring that you rent it out quickly and for the most money. The right rental price will attract a high-quality tenant to your property.
These are just a few of the tips and strategies we have as local Los Angeles property managers. We help investors price, market, lease, manage, and maintain commercial properties all across the area. If you’d like some help with your own commercial investments, please contact us at Bell Properties Commercial Real Estate.
