Keeping Your Retail CRE Occupancy Cost Low
As retail stores everywhere adjust to the new post-Great Recession sales reality, they are focusing on cutting costs commensurately with the public's more frugal buying habits. One of the largest expenses for most stores after the cost of the goods they sell is their real estate
occupancy cost. Here are a few strategies that you can use to control these costs:
- Do low-cost efficiency upgrades. Since most retail tenants pay their own CAMs, inexpensive upgrades like high efficiency lighting and low-flow water fixtures can frequently pay for themselves in a year and a half or so.
- Carefully review your itemized CAM charges. Ensure that your property manager is not overcharging you or "double-dipping" on management charges. While most property managers are ethical, there are a few who are not. If your expenses are running below budget, make sure that your budgeted CAM contributions get adjusted at your next CAM reconciliation.
- Compare your occupancy cost to what other tenants are paying in your market. Odds are that the market rent for your space is lower than it was a few years ago. If you are overpaying, see if you can renegotiate your lease with your landlord. Be aware that to successfully renegotiate your lease, you might need to agree to stay for a longer period of time. Of course, if you can lock in low rent, it makes sense to stay for a while.
- Work with your landlord on a property tax appeal if you are paying your own taxes. Many buildings have unrealistically high assessed values, making their taxes too high. If your landlord is passing the taxes through to you, he or she might not be as aggressive about managing them as if he or she was paying them.
- Compare your occupancy cost to what you are paying elsewhere. While it is hard to compare costs in New York City to costs in Des Moines, if you have similar locations in similarly priced locales and one has a high occupancy cost, look more carefully at it.
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