Am I Paying Too Much for My Commercial Real Estate?

No matter how far you are into your lease, the question begs to be answered. Knowing that you are paying at or below market level not only delivers peace of mind, but it’s also the first step to a maintaining an efficient corporate real estate strategy that delivers business results.

When you know which properties are overpriced, you can start preparing to renegotiate them, move them or even shut them down. Depending on how much exposure you want to get in the market and how much information you want to collect, there are three ways that you can go about researching market rent levels for leases in your corporate real estate portfolio.

First Step: Conduct a Survey

Through Internet services like Loopnet, CoStar, and broker web sites, you can do a relatively good job of surveying the market and determining which spaces are available. These services will also frequently give you an indication of what the asking rents are and may also include data on any common area maintenance (CAM) charges that go with the base rent. By looking at available spaces that are comparable to yours, you can get a general idea of market prices and how your current property compares.

The problem with this survey method is that you frequently get good data about asking rents, but are less likely to get solid information about what landlords are actually accepting. When you can get that information, it's frequently only available through paid services that can cost many thousands of dollars. Unfortunately, without this knowledge, you won't know where the market truly sits and you won’t be able to fairly evaluate your own space.

Second Step: Shop the Market

Meeting with landlords and shopping the market is an excellent way to get a sense of what landlords will actually do when a prospective tenant is in front of them. This strategy can be very appropriate if you're nearing the end of your lease and in a position to start to have theoretical, if not actual, negotiations. Shopping can give you great information, but it has two drawbacks:

• It’s time consuming

• It can weaken your position with your existing landlord if he is looking to move you out

Third Step: Retain a Tenant Rep Broker

The easiest way to survey the market is also the most effective method. Instead of wasting your corporate real estate department's time, hire a market professional to research and report back to you. A tenant representative broker that is already active in the area of interest usually has all the information you're looking for:

• Landlord’s asking prices

• Landlord’s actual prices

• Subscriptions to third-party data sources

Using third-party data sources to research gives your corporate real estate team the information that it needs to make decisions about rents in its existing spaces: If the researcher can also populate your portfolio management software with their data, you have information that you can also use for measuring your sites' productivity and their expense levels relative to the market as a whole. By putting it into your software, it's integrated with all of your other property and lease information, giving you a single place to review both your corporate real estate portfolio and the surrounding markets. This helps you to make better decisions, more quickly.