Commercial property in Cape Town and surrounds is highly sought after, yet property developers still face numerous risks and challenges. What are the risks and trade-offs when finding complementary tenants to co-rent a space? Here are some considerations:
Risk 1: Not getting full return value on commercial property
When renting a large commercial or industrial property to corporate tenants who have a large national presence, it’s likely said tenants will ask for discounts. This is because having a high-profile, household brand (such as a supermarket chain) in your building drives consumers to the premises. The tenant’s rationale is that the high volume of traffic they generate will make adjacent rental spaces more desirable. This in turn hypothetically increases the building’s rental-earning potential.
A similar principle applies in office rentals, where reputable, established companies that can promise stability and the prestige of their brand’s presence may expect discounts.
The trade-off: Attracting low-profile, high-paying tenants
Lower profile tenants are often willing to pay more to secure a spot in a mall or arcade that sees high traffic due to the presence of major national (or international) co-tenants. Even though accommodating high-profile, national tenants often means getting less rent for your space per square metre, the flip-side is that smaller tenants will balance out this shortfall. It’s thus wise to rent large-scale commercial property in Cape Town to a mix of major and smaller tenants.
Risk 2: Insecure income sources from multiple, less established tenants
The risk when filling your commercial or industrial property with less established tenants is insecure income source. Smaller businesses often lack the financial buffer or reliable cash flow to guarantee long-term tenancy or punctual payment.
The trade-off: Buffering commercial property income insecurity by leasing to major businesses
You may have several smaller tenants leasing your industrial or commercial property in Cape Town that aren’t national names. The greater financial risk that is inherent to this type of tenant, however, can be offset by leasing to a handful of major national tenants that bolster rental income security.
Leasing offices to let or other commercial or industrial property is always going to carry risks. It makes solid business sense, therefore, to ensure a balanced mix of major national and smaller, bread-and-butter tenants in order to avoid not getting the full return value of your property investment in rental income.