Why the Right Landlord Matters!
Identifying the right space to lease for your company requires the consideration of numerous factors – location, rent per square foot, amenities, tenant improvements, to name a few. However, one factor often overlooked is who is the landlord? Different landlords bring different pros and cons, and unfortunately, the wrong landlord can be detrimental to a business. On the other hand, the right landlord can allow a business to thrive. Here’s a brief synopsis of why the right landlord matters.
A Landlord Can Influence a Company’s Physical Growth
As a company initially seeks office, flex, or manufacturing space, they typically identify space that matches their immediate needs. Upon identification of that space, a lease is then executed for a pre-determined number of years. However, what happens if the company experiences growth over that timeframe and requires additional space? Their ability to grow may be dependent on the landlord.
This is why it is imperative for tenants to select landlords who can accommodate their future potential, whether by allowing them to expand their current space or relocate to another space. Seeking such a landlord will reap benefits in the future versus a one-off property owner. Most often, well-established landlords in the market are more likely to offer this flexibility.
A Landlord Can Neglect Building Upkeep
Depending on the structure of your lease, the landlord may be responsible for building upkeep. This can include roof and structure, common areas, restrooms, parking lot, etc.
Tenants should conduct their due diligence on the landlord prior to executing their lease and learn more about the landlord’s reputation and commitment to their tenants. They need to ensure that the landlord can be relied upon for maintenance issues and will commit to upkeeping the property.
Generally, the current condition of the property will be a sign of the landlord’s pride in ownership – and a poorly kept building often indicates a lack of maintenance.
If this is the case, a tenant can consider executing an absolute-triple net lease at a discounted rate and conduct a remodel themselves. Otherwise, they should identify in their lease a timeframe expected for upkeep, and an exit clause for security.
Remember: Image is everything for some businesses, and if a customer visits a site that is poorly maintained, it can reflect negatively on the business operator. On the other hand, a properly managed and maintained building can offer customer confidence, improving the business flow for the tenant.
A Landlord Doesn’t Have to Accommodate Market Changes
Most recently the office sector was severely impacted by the COVID-19 pandemic. However, this was not the first time the office sector has experienced economic hardship. Historically speaking, economic downturns are cyclical, and tenants must be prepared for this assured uncertainty.
Landlords willing to work with tenants during these times are the most sought after. They are willing to renegotiate leases during downturns to meet updated market rents. However, identifying landlords that will meet tenants’ needs in this capacity can be nearly impossible to determine. One avenue of learning how your landlord might approach this situation is to learn how they managed through the recent pandemic.
A flexible and accommodating landlord can prove to be the biggest asset to your business. And in return, they can avoid vacancies.
Landlords Control Who Else Tenants the Property
If you are considering moving into a multi-tenant property, it is critical to understand how the other tenants can impact your business, including your revenue stream. And unfortunately, you will have no control over the other tenants in the building.
Identifying a property that targets a specific quality tenant should be considered in your real estate search. Although rent may be higher compared to surrounding properties, quality tenants can ensure a positive image remains for your clients.
If you are concerned about transitioning to a multi-tenant property, locating a single-tenant space can be your best option. This ensures you have no unwanted businesses nearby, and can help set your company apart from surrounding businesses.
Landlords May Rely on Property Managers
In some cases – especially with established investment groups – they may rely on property managers to manage their real estate portfolio. These can be in-house or third-party companies that act as the liaison between the landlord and tenant. Just like working with each individual landlord, a property manager can pose similar risks. If you identify a location that relies on a property management company, conduct your due diligence on that company the same as you would with a new landlord. Are they attentive to tenant needs? Are they quick to respond to maintenance issues? Asking these questions preemptively can help businesses avoid moving into a space with below-average management.
An Alternative Option: Purchase Your Space as An Owner-User
For some owner-users, purchasing your next space may be the ideal answer. Owner-users who opt to purchase instead of lease their next space can then not only avoid the risks associated with leasing but can also benefit from real estate ownership. They can leverage their down payment for increased returns through potential appreciation; control the image and management of the property for their specific needs; lease out unused space, offering additional income potential; and potentially reduce income tax liability with deductions of interest expense and depreciation.
Ultimately, determining which option is best for you and the future of your business is up to you but can also be discussed with a local real estate expert. Through their experience and knowledge, you can gain a deeper understanding of the pros and cons of leasing versus buying and determine which option is the most suitable option for you and your company.