Rent not rising much on commercial buildings

Friday, September 22, 2006

It only makes sense for businesses looking for lease space to investigate what the appropriate rates are. Commercial real estate professionals routinely advise clients to use an authority or resource to verify what market rates are.

Businesses can look at Web sites and ask others who lease to get a good overview of what is available and how much space is costing. Doing your homework and checking from various different sources is highly advised.

Some of the most expensive space will be those that offer high traffic and visibility to a business -- a likely choice for a food franchise or retail operation. In the Cape Girardeau market, for example, this would mean a William Street, Kingshighway, Mount Auburn or Siemers Drive location. These have long been considered the most expensive of lease spaces, according to Cynthia Austin, a commercial sales agent with Realty Executives of Cape County.

Tom Kelsey, commercial broker with Lorimont Place Ltd. in Cape Girardeau, said small retail space in these areas can range from $12 to $18 per square foot, which means that a 1,000-square-foot space can run anywhere from $1,000 to $1,500 per month for the base rent. Common area maintenance and the tenant's prorated share of property taxes and insurance will also be added to the base rental rate. In comparison, Broadway or other older downtown spaces could be one-half of these rates or even less, according to Kelsey.

"Lease rates may vary in the same way that other commodities do," said Kelsey. "It's called the law of supply and demand. When there is an abundant supply of available lease space on the market, landlords become more willing to wheel and deal in order to get their developments filled."

According to a recent report by the National Association of Realtors, the expanding economy is pulling commercial real estate along with it, creating strong demand for space. The report says commercial real estate vacancy rates are falling and rents are rising.

Gene Rhodes of Cape Girardeau is involved in many Rhodes-owned companies that own and lease commercial property. One property is Sunset Towers, an office and retail complex on North Kingshighway.

"We only have one vacant spot in 19 spaces at Sunset Towers, and we have a darn good prospect on that," said Rhodes. "We really haven't noticed rents going up or down much. The rents have been steady and fair. I haven't heard anything bad from any renters ... seems they are content."

Rhodes said one of his companies owns Scott City Plaza in Scott City, a shopping area that is totally full. Other commercial property from Chaffee to Jackson are also rented.

"We get market price on rent and our renters know what that is. If someone has a rent problem, I'd hear about it. I'm not hearing anything bad," he said.

Kelsey said he has seen a controlled and steady increase for various commercial lease rates in all sectors of his specialties -- office, retail, industrial and warehouse. He said even when there has been high vacancy conditions, the rental rates in this area have stayed fairly constant. Kelsey said he advises landlords to offer incentives such as a free month's rent or better build-out allowances for tenants rather than drastically cut rates even during high vacancy conditions.

Austin said property owners benefit by using commercial real estate agents since they can properly advise them in pricing their space, negotiating with prospective tenants and drawing up lease documents so rental agreements can be readily understood by all parties to the contract.

Rhodes said he rents to a variety of businesses such as a pharmacy, several insurance agencies, a beauty salon, an accounting firm, several law practices, an accounting company, an engineering firm, a restaurant and a company based in Japan. He said long-time owners of older buildings can often offer stable, market-based rates and still have a fair return on their investment.

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