How Do You Compete Against Much Lower Rent

From the Next-Door Shopping Center…

You might have come across your nearby competitors’ shopping centers offering a much lower rate than what you’re quoting on your property. First and foremost, you need to embrace your property and the rental rates that you’re advertising. In many situations, the leasing agent participates in coming up with the rental rate, and in others, he or she does not.

I’m a huge proponent, obviously, of the leasing agents participating in coming up with the rental rates, and we want to come up with the rental rates by having a very thorough 10+ on a scale from one to ten, understanding and being knowledgeable of the market.

It’s important to really understand who’s got the better co-tenant, who’s got the better visibility, who has better space sizes… Is your center on one side of the highway vs. the other center being on the other side? Is there a geographical barrier dividing the two? Is there higher traffic could on your side vs. their side?

Let’s compare:

I had a shopping center in a sub-market where I was charging $30/sqft and the area’s shopping centers were charging $ 20/sqft. However, I only had two vacancies and the other centers had four or five. Why?

My two vacancies were 1,200sqft each, and the other center’s vacancies were 3,000-4,000sqft, which are much harder to lease. My center had direct visibility, exposure, and excellent egress and ingress off of the main road, whereas my competitor’s vacancies had outparcels blocking their exposure. They might have been elbow spaces on an L-shaped plaza as opposed to my shopping center being directly parallel to the main street. My shopping center had stronger co-tenants as opposed to their shopping center…

Other times, you might have the only former restaurant space or the only space that could potentially be a restaurant. 

There was a time when there were 30 burger chains looking in my sub-market and every shopping center around had a burger chain except for me. I was charging $5/sqft more than my competitors because I knew that this particular space, which was a former wings restaurant, I could get the extra $5/sqft and I could see, from the flurry of activity of the burger chains looking, that I could get a burger chain. On top of that, I had three other restaurants doing phenomenal sales numbers in my shopping center. I just had to sit and be patient to get the higher rent, which I did. 

If you understand the market completely and believe your spaces don’t hold the candle to the other spaces in the market, and the other property owners are charging less, then I recommend you produce a very thorough market study, give it to your boss and discuss it. Find out where your competitor is coming from. Don’t just whine and say, “My boss wants $40/sqft when the market is $30/sqft,” without checking off some of the topics that I discussed above. 

If you’re right and your boss or the person who wants you to get the higher rent is located out of the market, meaning he or she doesn’t understand the market, then that’s a problem. Your boss might have told you to get $40/sqft in rent because they recently bought the shopping center and that’s what the underwriting analysts in the acquisition department told them that $40/sqft was what they had to get to support the purchase price. You need to discuss this with your boss, however, doing so without thorough market information would not be a bright move.

That’s how I deal with shopping centers that appear to be quoting significant lower rents compared to my rents. 

Learn More:

How to Find Spaces That Are Not Yet on the Market

Maximizing Renewals

New Trends for Expanding Retailers

Knowing Your Market Means Knowing Your Competition

 

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