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.
