With the high demand for commercial properties expected to continue and even increase in 2019, expect changes in your contract with your landlord if you’re renewing your lease this year – especially in terms of rental rates. If your business is located in a prime location booming with opportunities, more landlords in your area are bound to charge higher rates, which could negatively affect your business’ budget and operations.
Mitigating the effects of rent increases means thinking smartly about the way you negotiate and what steps you can do to avoid increasing your expenses. These tips are some effective ways to either negotiate and avoid rent increases or changing the way you operate to decrease expenses and make way for new rent rates.
Negotiate With Your Landlord
This is assuming you have a good working relationship with your landlord and don’t have a reputation for being behind on your rent payments. If your landlord is not the take-it-or-leave-it type of person and is open to negotiations, and the property location is worth fighting for, grab the opportunity to make negotiations to keep your location without having to pay higher rent.
One thing you can do is to look at the competition. Check out similar commercial properties within the area and find out their rates, and then ask your landlord to match their offer. Another method you can try is to simply talk to your landlord: point out how your business has never or hardly ever been late with the rent because you are a profitable business, and it is more profitable for them to keep you as a loyal tenant in the long-run that they know pays on time instead of finding a new tenant they are uncertain of.
In both methods, you’re providing your landlord with a carrot and the stick. The carrot being a long-term tenant they can profit from while you operate in their property; the stick being the legal technicalities and paperwork of you moving out, the responsibility of finding a new tenant willing to pay for the area, and the possibility of their property staying unprofitably empty for months until they find a tenant to replace you. Once they realize this, they may be more inclined to keep you and give you the same rate they’ve already provided.
Cut Costs Elsewhere
If negotiations are a no-go and you have no choice but to pay a higher rent, you need to prepare your business for the added costs by finding places in your business where you can cut back on expenses. The savings you get from cutting costs will then be transferred to your rent budget.
This doesn’t necessarily mean laying off some of your employees, especially if you need all of them now to operate. However, it could mean improving their productivity so that they provide added income or are making money more efficiently.
One way to cut costs, for example, is to reduce your supply expenses. It pays to be a loyal customer to your supply vendor in the long run, but it’s possible there are other vendors out there who offer the same supplies and products at the same quality but at a much lower price. You’ll find plenty of discount suppliers that sell their products in bulk, and if your supplier can’t match that price, perhaps it’s time to switch vendors.
Improve Your Digital Marketing Strategy
Mitigating higher rent costs doesn’t necessarily mean cutting back. It can also mean improving your profits through efficient marketing strategies, giving you a bigger budget to adjust for the rent. A lot of small businesses tend to overlook modernizing their marketing through digital marketing strategies, but those that do will find they have bigger visibility and a higher chance of getting more customers through their door.
Digital marketing doesn’t have to be expensive, since paid advertising is not the only way to go about. By simply creating a social media presence (which is free) and enticing more customers to visit and refer their friends for discounts and freebies, your returns could cover the costs of both your marketing and rent expenses.
Take a Loan to Buy Commercial Property
When all else fails, you might want to take out a loan to buy your own commercial property. In some long-term cases, it’s actually much more practical to buy the property now instead of renting long-term. Remember, it’s highly likely that a building’s rent will continue to rise. But once you buy that property now, in the future, rising rent rates won’t be a problem because you bought the property when its value was much lower.
To get a loan, however, some loan companies require small businesses to meet certain criteria, such as how long your business has been established, how much it profits in a year, and generally how likely you and your business can repay your loan.
To meet with the rising rent costs, it is necessary to think smart and plan a strategy to mitigate the effects of the added costs. Whether you negotiate for a fair price or find ways to adjust your budget, addressing the added cost as soon as possible can soften the blow of the commercial real estate market and how it affects your business’ operations.