Wednesday, April 23, 2008

Landlord Insanity - Rents too high to open new stores

I constantly look for new locations online, mostly through Craigslist, and the market is still crazy after all these years. It seems to me that Landlords are spoiled, especially commercial ones, and they expect a company to sign off multiple years at exhorbant rates in order to guarantee a fat commission for the agent and allow the owner of the property to go on an indefinite vacation. Unless a business can remain profitable, and rent is the largest expense with the exception of labor, then it doesn't seem rationale to have such high rents.

Deep pocket companies can afford rents on the basis that they are branding and a storefront could be considered an advertisement that may in the end pay for itself. In fact malls and such will do everything they can to get in a store that will draw traffic while simultaneously jacking up the rent on paper for the other customers. For example, many of the cost of establishing a lease may be covered by the landlord for a larger tenant and the rent on paper appears higher than it really is. Then the market value of the property to a new tenant or to a bank is greater than the actual cost.

Based on the current marketing conditions and rental values for properties we will only be able to consider a new location if it fits the budget and/or the landlord is willing to offer complimentary terms. The benefit for the consumer is that more and more business will naturally flow to the web where the overhead cost are less and the savings are passed on to the customers. Once the market changes and there are more "For Lease" signs on the streets, then we may be able to expand further.

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