How Landlords Evaluate Prospective Commercial Real Estate Tenants

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When renting commercial real estate (office, retail, or warehouse space) landlords have certain criteria that they typically look for in a good commercial real estate tenant. Financial viability is the key issue for landlords. They want to be assured that their tenants won’t go out of business before the lease expires or jump from building to building just to get concessions.

Landlords also look at the type of tenant. Will this tenant help to create a mix that will, in turn, attract other good tenants? Banks, large law firms, and major accounting firms, for example, fall into this category.

At the same time, landlords are sensitive to the size of the tenancy proposed. They may not want one tenant to dominate the building. Advertising and public relations companies, for example (often the first to be faced with downsizing during economic downturns), are risky as predominant tenants in a building.

Although landlords would prefer to deal solely with tenants that have the best credit, they also recognize that sometimes they must accept risk. In these instances, they may want to minimize the risk by spreading a concession such as free rent over the life of the lease rather than giving it all in the first part of the lease.

Financial information is critical and they WILL ask to see your company financials. Psychology plays a role too. Landlords also want to know the reasons why prospective tenants are planning to move, and what motivates them.

Even in a soft market, property owners must be sold on prospective tenants, and even existing tenants.

Factors Landlords Consider When Rating Prospective Commercial Tenants

• Financial conditions
• Amount of space needed
• Occupancy date without lease assumptions
• Parking demands
• Potential for growth
• Potential of attracting other tag along tenants
• Potential use of amenities such as fitness center, deli, and banks
• Degree of reusable tenant improvements
• History in the commercial rental community
• Reasonable flexibility of desired placement within the property
• Timing of the lease acceptance
• Whether the property was the first or second choice
• Etc, Etc

As you look at commercial properties for rent and are comparing buildings and landlords, keep in mind that they are evaluating you as a potential tenant also. You want to make sure that you understand what landlords look for in a good commercial tenant so that you can prepare your company to meet the financial and other criteria that landlords have.

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