Vacancy Rate

Hello landlords and tenants. I’m going to discuss the meeting of “vacancy rate” in commercial real estate leasing. My name is Jenna Zebrowski and I’m the attorney behind LawByJZ.com. The vacancy rate is basically how much space is available for lease in proportion to all of the space available in the property. 

A high vacancy rate might mean lower rent, but it could also indicate problems with the location. Find out why the turnover is so high and what that might mean for your business.  The costs of and sales from the leased premises might be affected, and not in a good way, so don’t get into a leased location where you can’t run a profitable operation.

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Commercial Real Estate Case Study

Vacancy: Empty Spaces Affect Value

Miriam’s business was always evolving. She started her business as a storefront with storage in the back for her inventory, and then started using more of the location as a storage area when online shopping became popular.  In fact, she was making more money with higher sales than ever, and she realized her in-store sales had dropped significantly. There were less people coming into the store, because there were so few stores open in the shopping center. The center was old and needed to be updated to compete with other, newer locations nearby. Many stores had left after their lease expired, so there was a huge vacancy rate in the center where Miriam was.

The vacancy rate meant that with so few stores operating, Miriam wasn’t getting any business from shoppers visiting other stores in the shopping center. It wasn’t convenient to go to a location with so few options, so shoppers stopped.  

Miriam wanted to pay less rent. She found another location that had even less customer traffic, but the rent rates were a lot lower. There was plenty of space for her inventory and she could focus on her online sales. She knew she couldn’t complain that her sales were falling, because they weren’t, so she turned to her attorney who helped her get the lease, to solve the problem. 

The vacancy rate was the answer. Miriam’s lease said if the shopping center was less than 60% occupied, she could terminate her lease, because her sales from inside the store would be negatively affected. The landlord wanted her to stay a little longer, because they were trying to sell the shopping center to an investor without having to make any improvements. They didn’t offer to lower her rent enough, though, so she terminated her lease and moved to the new location. Her profits went up and she heard that the new landlords of the shopping center had fixed it up and were actually increasing rents as a result.