How to determine what you should charge for rent

By Greg Bell

How do you determine what the correct amount of rent is for your commercial property? Getting this figure right is the key to landing a high-quality, respectable tenant, being able to write a favourable lease agreement and solidifying long-term commitments that ensure a dependable return on investment for your property.

If you set your rental rate too high, you can end up with a property that sits empty on the market for months or even years. If you go too low, you risk missing out on returns you could be achieving, and also might end up devaluing the property, because long-term rental rates play a major role in determining the local market.

Discovering the right rental rate

Striking the right balance between too little and too much rent can be complicated, but starting with the math is your best option. Unlike residential properties, where the rent is calculated on a variety of factors (including how many bedrooms or bathrooms a house has, and additional amenities in the home or neighbourhood), commercial property rent is determined using a flat rate per square metre.

The rate per metre is arrived at by taking a number of factors into account. You'll need to consider:

  • The age of the building
  • The quality of the building (structural, aesthetic)
  • The location of the property
  • The size of the property overall
  • How many units are empty
  • Available services

Suppose you have an old building, in a prime location, with long-term, desirable tenants nearby. You could conceivably get more for it per square metre than a brand new building in a less optimal location. You need to know the local rental market and understand what kind of tenants you are seeking to appropriately price your rent for the best outcome.

Review going rates on the current market

This means studying the location, property state, and tenant situation with an eye to understanding the market benefits and how they will be viewed by potential tenants. Only then can you arrive at a fair rental rate for your property. When considering lowering monthly rent demands to get a tenant in, make sure your leave yourself an out when writing your lease; for example, sign a five-year lease that stipulates rent is subject to review each year.

Examining some of the more recent commercial leasing transactions in the local market, including checking out what your competitors' rental rates are, can help you determine a fair asking rental. You can also check search engines to see what rental rates are being charged for similar properties.

Need help finding, purchasing, or managing a commercial rental property? Contact Ray White Commercial Gold Coast for help from the experts.

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