Buyers should expect prices to rise as the real estate market continues to recover.
Los Angeles, CA (PRWEB) April 18, 2014
IBISWorld calculates a buyer power score of 3.0 out of 5 for commercial real estate rental. Favorable market conditions and multiple negotiating opportunities combined with a few notable drawbacks inherent in the commercial real estate market result in a moderate power score. Commercial real estate is a complex and often confusing market. Buyers are exposed to obscure terminology and difficult legal language during the process of finding and leasing real estate. According to IBISWorld procurement analyst Scott Winters, “while the purchasing process can be intimidating, well-informed buyers are able to take advantage of this complexity, because it gives rise to a considerable number of negotiation points.”
Commercial leases outline the various operating expenses that are charged to buyers. Depending on the specific lease, these expenses can be charged to the landlord or the buyer, and in some cases the two parties pay a portion of the total expense. Buyers can negotiate the incidence of these expenses with suppliers, ultimately reducing their monthly rent far below what was originally offered. “Favorable market conditions such as low interest rates, high vacancy rates and reduced demand all increase buyer negotiating power,” says Winters. As such, many suppliers are willing to negotiate on most or all of the provisions mentioned in the lease, to the distinct benefit of buyers.
Although there are many areas in which buyers and suppliers should negotiate, many buyers are uninformed about the commercial real estate leasing process, giving suppliers an opportunity to exploit unprepared buyers. It is for this reason that suppliers enjoy high profit margins. However, high profit margins actually increase buyer power because they allow more room for price negotiation. The only viable substitutes for commercial real estate rental are purchasing the property outright and subleasing. Suppliers can take advantage of this during negotiations. Suppliers also know that switching from one property to another can be expensive and time consuming, further allowing them to charge more. Continuous price reductions since the recession have bottomed out and recently begun to increase, making now an ideal time to rent commercial property.
For more information, visit IBISWorld’s Commercial Real Estate Rental procurement category market research report page.
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IBISWorld Procurement Report Key Topics
This report is intended to assist buyers of commercial real estate rental. Suppliers in this market act as lessors of nonresidential buildings used for industrial, office and retail purposes. These properties are meant to be used by buyers as a space in which to conduct their business. Suppliers are either owner-lessors of a nonresidential property or property managers hired by the owner to conduct leasing services for the property. This report excludes land or property rental intended for residential use. For the purposes of this report the terms 'rent' and 'lease' are interchangeable.
Recent Price Trend
Product Life Cycle
Total Cost of Ownership
Supply Chain & Vendors
Supply Chain Dynamics
Supply Chain Risk
Market Share Concentration
Buying Lead Time
Key RFP Elements
Buyer Power Factors
About IBISWorld Inc.
IBISWorld is one of the world's leading publishers of business intelligence, specializing in Industry research and Procurement research. Since 1971, IBISWorld has provided thoroughly researched, accurate and current business information. With an extensive online portfolio, valued for its depth and scope, IBISWorld’s procurement research reports equip clients with the insight necessary to make better purchasing decisions, faster. Headquartered in Los Angeles, IBISWorld Procurement serves a range of business, professional service and government organizations through more than 10 locations worldwide. For more information, visit http://www.ibisworld.com or call 1-800-330-3772.