What's your business quotient?

Tenant's, do you know your threshold of revenues that can be used for rent? Most small businesses don't, but the larger multi-location corporations surely do.


A few months ago, I was shopping around a cell phone dealer who was looking for space. I called one of the larger retail developers in the area inquiring about small inline spaces in his development. When I asked for a rate, he replied with, "what business does your client operate?" I told him it was a cellular phone dealer, and he said, "they can usually pay upto $25 per square foot". Sure I thought. That seemed like the top of the market, but it was not an obscene rate so I showed it to the prospect and let them direct me to their intentions. Well, I found out that the rate didn't shake them since they were accustomed to paying the high rates at other spaces.


Well, here I am months later realizing how all this fits together. Yep, the prerequisite for real estate brokerage is not necessarily genius. As a matter of fact, genius, can prevent success in many ways!

So what was really going on? The market has subtle supply and demand models that are applicable even down to the unique type of a certian business. Applying a little mind-strength and analytics to some of our data tools, we can make some since of the market.

One of our data sources tells us the market's total revenue for the business type and the number of businesses that are in operation. With that, we can determine an average revenue per business by dividing the total revenue by the total number of establishments. If the market is large enough, the action of adding one more business wouldn't skew the averages too much and we don't have to do any further calculations or assumptions. If the market is small enough that one business would dramatically change the equillibrium, then other assumptions should be entered into analysis. Once we have determined the average revenue that a typical business can generate, we use another data source that shows us the proportion of revenue that the subject business type can expect to pay in rent.


Marry the two figures together and you've got the amount that a business can usually pay in rent.


This is a good tool for the tenants out there and even better one for the landlords!

Another factor particullarly interesting to landlords might be the difference, if any, found as the sample of demand is increased further away from the subject site. If the revenue mean should significantly increase as the sample group expands further away from the subject site, then the local area market should be declining. In this situation, the landlord might consider selling the property before the total market dissolves as the trend hints.

Sorry if the analysis seems a little excentric, but these days we've got to get creative when finding an advantage for our clients!!! I hope it helps you too!