Dear Monty: Four steps to fill vacant retail space
By Richard Montgomery
Reader Question: I own an 8000 square foot retail building fronting on a street with a 15,000 daily car count. The building is brick and block with a retail glass front, and about 60 years old. The parking is adequate. Two tenants occupy the building. One pays about $14.00 per square foot (PSF), and one pays $11.00. 2500 square feet is vacant for over a year. Two different agents have come up empty-handed. I am concerned if I rent it for less than 14 dollars, the tenant will attempt to negotiate. What can I do to get this space rented and how can I deal with the 14 dollar tenant?
Monty’s Answer: We will assume your local economy is static. We will also presume you have owned the building for a long time and maintained it in good condition. It is unclear what the real estate agents learned from their prospects. Was there pushback on price? Did prospects lease other space in the same neighborhood or elsewhere? If there are correctable deficiencies, fix them now.
Expand your prospects
There are two different markets for the available space. One market is for an owner occupant. They are currently operating a successful or growing business. The term “Whether you rent, or whether you buy, you pay for the building you occupy,” resonates with them. This prospect could be retail or a service type business.
The other market is the rent-only tenant who either needs more space or less space and cannot obtain it in their current building.
Prepare to find the tenant or owner
You will have to do the work yourself. The nature of the commercial brokerage business is such that very few commercial agents take the time to invest in prospecting in the fashion described below. Commercial brokerage relies mostly on paid advertising, signage, direct mail, and developing relationships with clients that are a steady source of inventory or repeat users. Most commercial brokers rely on inbound calls to generate prospects.
Step 1. Identify the most likely prospects. Determine the owner of each parcel on the street. Ignore shopping center owners. You want to learn the name of the owner, how to contact them, and the size of the building. The municipal GIS system, plus internet mapping platforms such as Google Maps or Bing to do flyovers will assist you. There may be 100 contacts turned up with this search. Spend an hour every day researching for information. You will soon have a complete list. You can also acquire a city directory, which has already done this work for you.
Step 2. Study the information you gathered. You will learn a lot more about what is going on in the area. You may be surprised to see certain properties owned by the same person. That could be true on your block. You should contact that owner to see if they want to acquire more. You will see oversupplied and under-represented categories. You may see that a local company with outlets in other parts of the community is absent. You may learn a tenant has outgrown their space and the building cannot accommodate them.
Step 3. Re-evaluate your pricing. You did not mention offers, so I assume you had none. A year on the market with no activity could mean you and the agents have not priced it correctly. Make some secret shopper calls to your competitors to learn their pricing. Ask how long they’ve been looking for a tenant? Create a profit and loss projection to email candidates.
Step 4. Come up with a script and contact every property owner and tenant (include local business owners in high-rent centers). The telephone is the fastest way to cover the field. If you are talking to a landlord, see if they want to acquire more property. If you are talking to a tenant, do they need more space or a smaller space? Have a data sheet prepared for each type of prospect and email it to them. You are reversing real estate marketing by making outbound calls to generate leads.
Go back to one of the agents if you have a relationship to negotiate reducing their fee if you find the tenant. On your fear about your $14.00 tenant opening negotiations, you are likely not obligated if such words are not in the lease. You can decide if negotiating is a logical move if and when it comes up.
Richard Montgomery is the author of “House Money – An Insider’s Secrets to Saving Thousands When You Buy or Sell a Home.” He is a real estate industry veteran who advocates industry reform and offers readers unbiased real estate advice. Ask him questions at DearMonty.com.