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Tenant vs. Landlord: Expert weighs in on who has the upper hand in leasing commercial space
Who has more power in a down market: Tenant or Landlord?
Since landlords and banks are having to swallow a bitter pill, Atlanta’s excess vacancy, combined with weak job growth, means property owners are offering very aggressive deals to both new and current tenants alike.
Tenants currently hold all the leverage in securing lower rental rates and higher tenant incentives.
A building’s worth is not defined by the bricks and mortar, but by the tenants that drive income through paying rent.
This doesn’t mean that Landlords will take what they can get and sign a lease with any Joe Schmoe. The old, “location, location, location” slogan still applies. If a landlord owns a retail space at an A+ cross street or center, they know if they wait long enough, an ideal tenant will find a home there in less than six months.
Landlords are checking prospective tenant’s finances and business plans rigorously to secure a personal guarantee on the lease. While the cost of maintaining a vacant property can be very expensive (debt payments, taxes, maintenance, etc.), dealing with a non-performing tenant is far worse than the alternative.
Evicting a tenant in default is a long and expensive process. Once the tenant is evicted, more often than not, there is damage to the property.
In most real estate deals, the property owner must pay commissions to the brokers, provide a tenant improvement allowance, and a negotiated number of months of free rent. When a tenant’s business prematurely fails and defaults on the lease, there’s a large financial loss.
The landlord’s left wishing they had just left the lights off.
While many markets have started to rebound from the global recession, Atlanta remains anchored down, and the sinking ship of real estate continues to plague our cities growth and economy.
If a tenant has the right ingredients (strong finances, experience, and reputation), now is one of the best times in the last 25 years to be a tenant looking to sign a lease in this market.