Justifying retail rent is indeed important for both shopping mall owners and tenants. Here’s why it is crucial and how it can be done.
Are you a shopping mall owner or manager, or perhaps a shop owner on a high street? Even if you only own a small shop to lease, that makes you a landlord/landlady, which means you are effectively running a business. Of course, being a business owner, whether you like it or not, money is a topic of discussion you can’t escape. However, there are many practical ways to bring up the subject easier nowadays and make it a less painful matter.
Many landowners worldwide are torn between keeping a good tenant or keeping up with market rates. While maximizing your rental income is important and sounds great, the benefit of hindsight can tell a whole different story if you can’t find a new tenant right away or, worse, rent your shop/land to a bad tenant. Seasoned landlords and landladies say, “A good tenant is worth their weight in gold.” but as a renter, you don’t want to price yourself out of the market either. What do you think is the best course of action to take in this conundrum?
In this article, we’ll explore how you can communicate better with your tenants and what methods you can use to justify a rent increase.
Good Tenant vs. Market Rates
Of course, it’s important for a smart landlord to consider the long-term benefits of keeping a reliable and responsible tenant rather than just focusing on a small increase in rent. The ultimate answer to the earlier question is maintaining a positive and mutually beneficial relationship with tenants. This would, in most cases, lead to a more successful and sustainable rental property.
Even if your lease includes set-in-stone dates for rent reviews, it’s worth having regular conversations with your tenant and understanding their situation a little better. Maybe you can find alternative solutions that could be beneficial for both parties, or you can offer some freebies and sweeteners to justify the raise. Even a small gesture, such as repainting the shop or replacing older appliances and furniture for free, can help your case.
If you’re a good landlord, chances are your tenant will also want to stay and will be okay with an acceptable increase rate. If a tenant is set on leaving your land, however, it’s highly likely that they will unless you’re willing to make sacrifices. Remember when we said you’re effectively a business owner when you’re a landlord? In that case, you should assess the situation thoroughly and see if it’s more beneficial to keep your current tenants despite pricing yourself out or seek new ones. If you can’t find a new renter within a few months, you may lose money overall even if you increase your rates.
Embrace a Data-driven Approach
Justifying rent rates and getting your tenant’s approval is a lot easier if you use a data-driven approach and discuss the subject with your tenant in a proper way. For instance, employing a modern and reliable people counter at the entrance of your store in a shopping mall or high street will reveal how many people enter and exit per hour, day, week, month, or year. The specific time period is up to you and how you want to build your case.
Providing the business owner/renter with concrete visitor numbers and other important metrics can help you justify your case easily. A modern people counting sensor can even help you track storefront performance and also help your renter understand what they’re doing right or wrong. Imagine being able to provide them with the demographic information of your mall’s visitors or which groups of people regularly pass by or stay and check out the window displays of their store via zone analytics.
People counting technology can deliver even more vital information in order to help you build a strong case for a rent increase. You can even prepare an unorthodox rental contract and agree on some key performance indicators visitor number-wise, and if tenants demonstrate positive results, it can justify rent increases.
Monitor The Rental Market In Your Area Regularly
Easier said than done, we know, but following the rental market in your area closely is extremely important, and it’s gotten more painless thanks to online boards and specifically tailored mobile apps. Understanding the current rental market in your area and pricing range can help you come up with solid reasons for why you want to raise prices and convince your tenant.
As always, you should always consider more than just one factor when you want to justify a rental increase; as stated earlier, a good tenant is hard to come by, and you may not want to lose their business for, a significant hike up may hurt both parties more in the medium to long run. Risking a good tenant moving out due to an inconsiderate rent increase is ultimately a bad way of doing business.
Having said all that, keep in mind that they are also business owners, considering they’re renting a place in a busy street or a shopping mall, and they also follow the rental market quite closely. Plus, your tenants understand the ever-growing operational costs one has to make in order to keep the business flowing, meaning they will expect rental increases and will do their own research.
If things come to push and you end up having to increase the rent of your tenant, don’t make it an excessive amount. Hike up the rental rate according to the current market space, and if they’re a long-standing tenant and you’re satisfied with them, only increase to a level that you need to; after all, your costs of increasing the tenancy and livelihood are also increasing and communication goes both ways. Most landowners offer rental rates that are slightly lower than the market value in their area to ensure they find tenants fast and prefer quality over the sake of a few more bucks.
Find The Right Time to Discuss
Keeping your tenants long-term usually offers the best return unless your country’s economy is excessively shaky. Regularly communicating with your tenants is good, but it doesn’t give you a free pass to drop a serious talk on them. You shouldn’t ambush a good tenant with a sudden money talk. Yes, at the end of the day, this is a two-sided business agreement, and you have every right to demand an increase in rental pay, but doing this properly can yield much better results.
Depending on the rental laws of your country, the ideal time to bring up the topic may differ, but it’s usually best to let them know that you wish to increase the rent price before the last two months of the contract arrives. You should also let them know in a trackable manner, such as via email or an SMS, because if need be, you need to have some evidence that has a timestamp on it.
You can let them know why you want to increase the price of rent in a well-written and respectful email and show that you’re open to discussion. You can show them visitor data you’ve obtained through people counting solutions, or explain to them how costs are rising up and you have to at least match said costs with the hike up, or show them that overall rental market prices are going up significantly and that you need to update your prices as well.
If your mall has a reliable people counter and you can display your tenant metrics like visitor flow, visitor dwell time in specific zones, and other relevant numbers, they may be more willing to accept the changes.
Conclusion
The world is changing rapidly, and even small-to-medium-sized businesses are adopting new and innovative technologies in a heartbeat. Data-driven decision-making is replacing “guesstimating” and the retail space is heavily leaning toward using people counting. In fact, Gartner’s recent study shows that people counting will grow significantly, and by 2028, it will reach $7.3 billion from 2021’s 0.5$ billion.
This technology is becoming a must-have for shopping malls and high street shop owners. It has many great benefits, and it’s one of the best tools out there on the market to justify your rental rate changes. If you want to test it yourself, book a meeting with us now, and we’ll get you connected with one of our people counting experts in no time. Let’s shape the future of your business together!
