Listing Commercial Property

I had a meeting with a prospective client yesterday about listing their property.   There is perhaps 40% office vacancy in the area and his building needs a lot of work.  

This is not an uncommon scenario these days.   Many landlords are cash strapped and those dollars are precious.   I often hear that they will happily pay to fix it up once we have a lease with a tenant.    The common logic is that they hate to spend money to fix it up (new paint, carpet, etc) when they do not know what the tastes of a prospective tenant will be.   The fear is that the money will be wasted.

Although this is certainly logical and understandable, this logic will destroy your ability to lease or sell the property.     In the market today, there is a huge inventory of commercial property.   In thinking about the market today, it is useful to consider that there is perhaps a 10 year inventory of commercial property, meaning that at current rates of sales and leasing, it would take nearly 10 years to absorb all of the property on the market today.  (These rates do vary but this is not off base from actual rates from the last 2 years).  

Now, ask yourself, "Do I want to wait 10 years to sell or lease my property?"   I dont know anyone who can wait 10 years to lease or sell their property.   Logic would then tell you that if you want your property to move this year, you need to somehow position this property so that it is in the top 5% of these properties.   Lest you think that I made a math mistake, consider this.   If you were to aim for the top 10%, you would just barely be at the limit of the properties that are moving.   On that cusp, you may or may not be able to make things happen.

Back to the property from yesterday - with 40% vacancy, you have to fight to even get someone to come take a look.   When that person gets there and sees your property in disrepair with a promise that everything will be fixed if they rent and the property next door in pristine condition, which property do you think they will take?    To properly compete, you need to be as close to perfect as you can manage.   This means:

• No mechanical issues -
• HVAC all working properly and on ready to show;
• plumbing all working properly with no leaks,
• electrical outlets in good repair
• all overhead lights working properly;
• all utiltiies on and working.  
• No issues with roofs.  
• Windows and doors in good repair
• All walls, floors and ceilings in good repair, clean and freshly painted.  
• Carpet cleaned if not replaced
• Clutter removed (old loose wires, old equipment, etc)

While some of this may seem obvious, believe me when I tell you that I have shown property with a flashlight with an internal temperature of 40 degrees and I have shown property with the carpet saturated with water and the ceiling tiles drenched.  None of these properties moved no matter how many promises of fixing it up to the prospective tenant's satisfaction.

If you would like an assessment of your property, let me know.   Have a great day all.

David

David W. McCoy
Associate Broker
Commonwealth Commercial Real Estate
10444 Bluegrass Parkway
Louisville, KY  40299