Market rent is dependent on supply and demand conditions. If demand increases/decreases at a given level of supply then market rent increases/decreases respectively. If supply increases/decreases for a given level of demand then market rent decreases/increases. Demand conditions are influenced by such factors as the demand for goods and services. If there is a high level of unemployment in an area then this will have a negative impact on demand for commercial property. The recent economic downturn which was spurred by the Great Recession had a negative impact on demand for commercial properties.
This had a negative impact on market rent and therefore resulted in a number of commercial properties being left vacant. If the demand for consumer goods is flat then it would be rather nonsensical for a valuer/landlord to place a high market rent on a property. Government policies and other factors affect the setting of market rent and so local real estate taxes influence the demand for commercial properties in certain areas. Therefore, a property in a Freeport area will be more attractive to a lessee whose main focus is on cost reduction. The cost of utility can also influence the market rent for properties.
The utility bills for commercial properties form a significant portion of a lessee’ s expenditures and so a high rent is not complementary. The ability to pay this and other expenses along with the monthly lease payments are critical to the success of any business. The value needs to take these and other relevant factors into account when deciding market rent. A short-lived lease is just as bad as having a vacant property. Managing a vacant property can be very expensive when the risk of vandalism, fire, fly-tipping and other factors are considered.
In fact, leasing such properties as quickly as possible would be a high priority. Therefore, reasonable rent that takes all advantageous and disadvantageous factors relating to the landlord into consideration is critical.
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