A great location maintains low utility costs.
The reality of retail is that the cost of goods, labor and construction increase every year. While a landlord’s base rent costs are linked to the historical success of a particular location, the level of tenant finish, tenant improvement allowance made available and absorption, base rent is negotiable. As you know, base rent isn’t the only cost that a tenant has to pay. Triple nets, NNNs, or additional rent elements such as common area maintenance, insurance, management fees, real estate taxes are a mixed bag of costs that end up in the tenant’s monthly invoice. The contents of additional rents can function differently.
The cost of additional rent elements like common area maintenance and administrative fees can be actively maintained or capped in the mutual interest of the landlord and tenant. Insurance, real estate taxes and common area utility costs fluctuate with little ability for the landlord to fix or set the level of annual increase. This is a problem for tenants. If tenants don’t know which of its lease costs are going to increase annually or by how much, budgeting properly is very difficult. Landlords know this. The good ones will hire attorneys and specialists to contest real estate tax and insurance increases on a regular basis.
A great location is one in which the landlord uses equipment that reduces utility costs and hires regularly scheduled specialists to maintain the same. Landlords should combine purposeful maintenance of its asset with safety and precautionary measures to keep utility costs low for everyone involved. If you’re a tenant or an investor in a retail asset, be sure to ask the owner about their utility mitigation strategy.