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4 Ways to Keep Rent Costs Down in Development

Although single-tenant build to suits can have an abundance of advantages, it doesn’t come without the challenge of staying on track with the budget and timeline to keep rent costs down. Leaping from milestone to milestone requires solving any issues that may arise -- and swiftly, before the delay becomes detrimental to the overall costs.    

So, without further ado, here are some actions to take to best anticipate and keep the rental rate down to a favorable level.

Keep-Rent-Down

  1. Finalize schedule & design early

    Be equipped early on with solid, complete expectations of your vision in regards to design and timeline -- the main contributing variables to the total rent cost. The second part of this task is to ensure these wish list items are conveyed to the construction team to reduce any surprises, like plan revisions or change orders, before moving too far into the project. 

  2. Consider the rent constant approach 

    Partnering with an experienced developer can be beneficial because they can enact a rent constant based on factors such as your credit, current interest rates, geographic market, type of building, lease term, annual rent escalations, and special lease provisions. 

    For example, if the rent constant is 8% and the rental base is $1,000,000, you can expect the initial rent to be $80,000 per year.

  3. Understand the rental base 

    As mentioned in the previous point, the “rental base,” or the total development cost of the project, is what will ultimately determine your end rent cost. So, be aware of all the hard and soft costs including land, site improvements, design, building construction, contingency plan, and construction financing to have a more accurate endgame. 

  4. Take a collaborative approach

    Working with a preferred developer encourages addressing and solving any pricing and design issues early on due to their extensive level of expertise. Depending on the situation, you may have a chance of them eating some unforeseen costs that come up, in order to retain the relationship.

    To stay on track with the project schedule, oftentimes a project may need to proceed even before the rental rate is set in stone. So, the sooner a developer is brought into the equation, the sooner the complete list of project costs will be calculated.    


Keeping rent costs down is not as impossible as you may think, yet it does require strategic actions, such as the points noted above, to achieve fair pricing, your desired design, and on-time completion. 

 

This article is intended for informational purposes only and should not be used as a substitute for recommendations or services provided by a licensed professional. 

Tags: Commercial Real Estate Development Planning Best Practices Budget

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