Six ways to protect against commercial space rent hikes
Conventional and inventive steps can help small business owners negotiate with their landlords.
The long-anticipated economic upswing is boosting demand — and prices — for commercial space. Yet for even the most successful business owners, a rent increase can strain budgets.
Here are six ways you can handle rising rent and protect your businesses from unexpected hikes in the future.
1. Embrace the sharing economy
The peer-to-peer sharing market is booming, two-thirds of global respondents to an online survey indicated they are willing to join in this market, according to Nielsen.1 Whether it's empty office space, an unused cluster of desks, or extra parking spaces — many businesses have unused or underused resources. Sharing expenses and assets can bring in new revenue streams and cut costs.
2. Adopt creative negotiating
Negotiate your lease to combat rising rent. For example, offer to pay several months' rent upfront. If the landlord refuses to budge, accept the higher rent in exchange for a fresh coat of paint on the walls or a new ceiling fan.
3. Appeal to your landlord's reason
If your landlord is firm about raising rent, reason with him or her. Be honest about how the increase will affect your business. Landlords know it's expensive to have a tenant move out: They have to make repairs, deep clean the space, and apply fresh paint. In the end, your landlord might opt for keeping a current tenant happy rather than face the expense of finding a new one.
4. Consider a percentage rent clause
"One way to maintain stable rent in tandem with your rising sales is to negotiate a percentage rent clause," says Daniel Schubert, co-founder and president of AMTDirect, a lease management software company. A percentage rent clause is ideal for small business owners in the retail industry because they usually start with a lower base rent, which increases over time. "The landlord gets to share in the success of the business by charging additional rent if sales numbers reach certain thresholds," Schubert says.
5. Sign a long-term lease
Signing for the long-term is the best way to prevent an unexpected future rent hike. It ensures that your rent remains stable until its expiration. But signing long term can be tricky, so research market conditions and their implications for the future.
6. Negotiate your rent early on
The best way to negotiate rent is to open discussions early, at least a year before the end of the lease. Be straightforward about your expectations, and be willing to compromise.
While these are just a few ways to protect yourself against rent hikes, being flexible and savvy can help further. Explore all your commercial space options to negotiate better terms and get the best deal for your rent.
1 "Is Sharing the New Buy?" Nielsen. (2014) http://www.nielsen.com/us/en/insights/reports/2014/is-sharing-the-new-buying.html