You are in the business of commercial property investment to make money so you want to make sure your investment is generating the best possible returns. However, charging too much in rent can be counterproductive as it may cause your tenants to go elsewhere, leading to vacancies and loss of income.
Rent increases are a challenging area of property management as there is a fine line between raising the rent for the maximum return and raising it too far and upsetting your tenants. Generally it’s accepted that rents will increase over time so as long as you approach it in a reasonable way, your tenants will most likely accept small rent increases on a fairly regular basis.
Many commercial leases stipulate a yearly fixed price rent increase of a certain percentage of the rent. This is a great way to ensure your income continues to rise without having to go through the process of renegotiating with tenants each year. Having a fixed price rent increase written into the lease also means you can accurately predict your rental income and this is useful for budgeting and future projections.
If you don’t have annual increases written in to the rental agreement, you will want to consider renegotiating the rent each year when you renew the lease. Be aware that most tenants will expect an annual rent increase. As long as the increase is not too dramatic and it remains in line with market rates it shouldn’t cause too much of a problem.
Charging the right rent is crucial to the success of your commercial property investment. Charge too little and you’ll lose income, charge too much and you’ll lose tenants (and therefore income!). This is where an experienced property management company can make a huge difference. A commercial property manager will know what the market rates are, will be able to negotiate rent increases and can handle the whole process so you don’t have to worry about it.