The pandemic hit the commercial real estate world especially hard, driving up retail vacancies and accelerating shifts from office to remote work, as well as brick-and-mortar businesses to e-commerce.
Although commercial market recovery is well on its way, some property investors are still having trouble finding suitable tenants for their spaces. What do you do if you’ve calculated an accurate rent and marketed it to clients, but you still can’t fill your empty commercial space? Before calling a real estate broker to help sell your property, consider these creative tips for new property investors and experienced landlords alike.
Offer Flexible Lease Terms
Although commercial landlords have traditionally sought three-, five-, or 10-year leases, some new business owners are hesitant to make a lengthy commitment in today’s market. One way to incentivize them to sign is to offer shorter leases.
One- or two-year terms are becoming increasingly common. You can also offer perks such as discounted or free rent for the first few months. Once lessees in the space and their business takes off, it’s likely they’ll be more willing to sign a longer lease.
Allow Customization of Your Space
Allowing tenants to build the space to their specifications will attract a wider variety of businesses. Before work starts, make sure you agree on the scope of the renovations and the financing. This can be an excellent opportunity for negotiation, as some tenants will gladly sign a long-term lease if the landlord pays for some, or all, of the renovation costs.
Convert to a Gym
Gyms are one of the most durable businesses in the U.S. The fitness industry is growing at a steady rate of 3–4% now that it’s weathered the worst of the pandemic. Whether you’re overseeing the conversion yourself or seeking for a ready-for-move-in fitness center, transitioning to a gym can be surprisingly smooth.
Gyms can get set up fairly quickly and rarely require renovations or customization as long as you have lights and bathrooms. The national department store chain Kohl’s recently contracted with Planet Fitness to convert some of its unused commercial space into gyms.
Convert to a Coworking Space
Coworking is one of the fastest-growing industries in the U.S. right now, with the number of facilities projected to double by 2025. That would constitute nearly one-third of all U.S. office space.
Consider Medical Office Space
As the baby boomer generation ages, they’ll need more medical care, which means the demand for medical office space may increase. Additionally, demand for urgent care facilities is projected to grow nearly 5% a year because of the ongoing pandemic.
This is a golden opportunity for commercial real estate owners to convert their spaces into pharmacies, wellness centers, medical facilities, or urgent care clinics.
Book Pop-Up Shops
Short-term, pop-up tenants can be a great source of revenue if you’re willing to be flexible. Holiday stores, tax preppers, art exhibits, and specialty retailers need commercial spaces for a few weeks to several months. It is important to keep in mind however that rents for pop-up tenants tend to be lower than for long-term tenants.
Working with these businesses may seem like more trouble than they’re worth, but there can be upsides for the landlord. Having a business in your commercial space brings foot traffic that can catch the attention of your next tenant.
Use Your Space as a Venue for Private Events
There’s a massive demand for private event spaces, especially in expensive urban areas. People will pay top dollar for attractive rooms to host birthday parties, baby showers, and corporate events.
If you consider this route, your property will need to meet different standards than an empty retail space. It will need to be fully designed and aesthetically pleasing. It should feel more like a living room than an office or retail space. Before you start hosting private events, double-check your local zoning regulations to make sure you’re not breaking any laws and speak to your insurer about what coverage you might need.
How Do You Know When It’s Time to Sell?
Knowing when to sell a property can be difficult. It may help to compare your return on investment if you keep the property versus what you might make on the open market. For example, let’s say you make $1,000 a year on your property. If you sell it for a profit of $100,000, you’d need to rent your property for 100 years to make that amount. If that doesn’t seem worth it, it may be time to sell.
This evaluation method depends heavily on the potential sale price of your property. Conduct an exhaustive comparative market analysis to assess your property’s value accurately.
You can save money on the sale of your investment property by using a 1031 exchange, which allows you to defer capital gains tax by reinvesting the proceeds into like-kind property.
Ben Mizes is the Co-Founder and CEO at Clever Real Estate, the nation’s leading real estate education platform for home buyers, sellers, and investors.