Strategy

Q&A: Use hunger to your advantage

Question
Ian Young
of Sydney, New South Wales asks:

My company has 42m² excess office space and I’ve had a trusted agent trying to find a tenant for the last 3 months at $650/m² pa. Meanwhile, I have a rival agent circling with a recommendation for $500/m² pa. What do I do? Wait for the higher rent but risk further vacancy, or accept a lower rent but, well, risk further vacancy?


Answer
Kenelm Tonkin,
Chairman, Tonkin Corporation answers:

If you find a tenant tomorrow at the high price, you will achieve $20,475 in your first year. However, had you found a taker at the low price 3 months ago, you would have achieved $21,000 for the initial twelve months. Though there are always exceptions, the old rule of price elasticity of demand holds firm. If you increase price, volume decreases. When you decrease price, watch them chase you.

This is nice theory. However, the reality is that commercial real estate is a poker game. The truth is that you never know whether you will achieve $500/m² pa straight away and it is possible to achieve $650/m² pa immediately. The secret to maximising your success is to exploit the forces of competition. Use the rival, hungrier agent. Bring him into the game. Tell your trusted agent he now has competition. In fact, if you can find other agents, make it an open market. Set a fair price and tell them all.

In short, if things are not currently working, try something different. Go with the hungrier agent.

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