I've bootstrapped multiple seven-figure companies and am sharing hard-earned lessons and insights about entrepreneurship.
Commercial RE rents and SMBs
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NNN expenses are starting to impact industrial rent growth. Because class B/C industrial tenants don’t care about base rent. They care about the total check they write every month for real estate costs. For example... In Metro-Boston’s industrial market, base rents for Class B space average $12.50 per SF, but total occupancy costs often hit $18-$20 per SF. Operating expenses can run $6-$8 per SF (usually $3-5), with property taxes making up 40-50% of that. A tenant leasing 30,000 SF with NNN at $6.50 per SF pays an extra $195,000 per year—before rent! Here’s where it gets worse: If NNN expenses rise 20% over three years, that’s an extra $39,000 per year on a 30,000 SF lease. In a flat market, landlords can’t offset that with higher base rents—net effective rents decline as tenants push back of paying all the operating costs. Currently, Industrial vacancy in Greater Boston roughly 4.3%, but when total costs exceed $20 per SF, many SMBs will not be able to afford it. I'm curious to see what happens and if that level can be consistently broken, or if it's a sticking point. What's your move? Push back on assessors. If your taxes are rising faster than market rents, fight the valuation (good luck). Underwrite little to no rent growth. Build a margin of error to absorb rising costs without pissing off investors. Operational excellence: A $1.00 per SF lower NNN makes a space 10%+ more competitive—without cutting rent. In-house property management to save on fees. Look at solar batteries, outdoor storage or other creative options to drive income. I'm bullish on investing in class B industrial but I believe the days of ramping up NNN costs and rents without push back are numbered. |
Hi, I'm Barrett
I've bootstrapped multiple seven-figure companies and am sharing hard-earned lessons and insights about entrepreneurship.
As mentioned last week, I'm currently under contract on an Industrial / Industrial Outdoor Storage (IOS) property about 20 miles from Boston, MA. I've kicked off my due diligence process, and I figured it would be helpful to shed light on the costs and process in general. PS: If you want to see my real estate deals, quarterly updates, and new CRE opportunities, join my RE Investor List. When buying CRE, you cannot cheap out or do half-assed due diligence. To successfully execute a deal, you...
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For entrepreneurship to be worth it you need to make 2-3x the money you could at a job. Many will disagree with me, but frankly, I think it's a cope to justify their decision to hang their own shingle. I truly think many would be happier working for somebody else. Entrepreneurship culture glamorizes the good parts but doesn't touch the bad parts. When things are good you're on top of the world, but when things are bad it can feel all-consuming. There's a premium that makes dealing with the...