Let’s Talk Renewing a Tenant: Should You Renew or Find a New One?
If you’re a landlord deciding whether to renew your current tenant or look for a new one, here are a few factors I’d consider before making a decision.
- Market Rent
If your current tenant is paying below market rent, it can be tempting to start fresh with a new tenant at a higher rate. While that may increase your income on paper, it’s important to look beyond the rental rate and consider the total financial impact of making a change.
- Realistic Lease-Up Time
One of the biggest costs of replacing a tenant is vacancy. Even in a healthy market, a space could an take 6–12 months to lease. During that time, you’re still paying taxes, insurance, and maintenance while collecting no rental income. In many cases, that lost rent can outweigh the benefit of achieving a higher rental rate.
- Tenant Improvement Costs
Consider how much work the space will require for a new tenant. If your current tenant can renew with little or no improvements, that may be far more cost-effective than spending significant money on tenant improvements, build-outs, or repairs to attract someone new.
- Your Long-Term Goals
Your strategy should align with your investment goals. If you plan to hold the property for the long term, maintaining occupancy and steady cash flow may be more valuable than pushing for top-of-market rent. If you’re planning to sell in the near future, however, bringing leases closer to market rent can make the property more attractive to buyers and increase its value.
When you’re considering your options when a lease is renewing, it is important to consider all the cost of each option, the risk involved and your long term goals.
If you’d like to discuss a commercial real estate need, reach out at the contact information below!
Emma McDaniel Lunning, CCIM
864-576-4660
emma@mcdanielandco.com
