The cost of your industrial real estate includes more than the rent. Besides the obvious items of taxes, insurance, utilities and CAM, there are the less visible logistics costs: business travel for your employees; the effect of your location on the cost of available labor.
A key metric is the annual rent as a percentage of property value. This should be in the range of 15% to 16%, closer to the low end for a highly valued property, closer to the high end for a less attractive one. Compare rents in the area for comparable properties that would suit your purpose, allowing for differences in build-out costs and other operational costs. The value of the property can be determined by an appraisal or from sales records. Divide the rent by the property value and see if the result is located acceptably in the 15% to 16% range. If the result is greater than 16% assess whether this is due to greater than usual anticipated growth in value for the property. If the result is less than 15%, examine the property and the deal very closely to determine why the price is so low.
There are industrial real estate software packages available to assist in your evaluation of your rental position. Commercial real estate software can aid in your determination of the property value in the same fashion as if you were considering a purchase of the property. Then it can calculate rent as a percentage of property value. However, like any computer application, do not put total dependence on the results. Use it as another tool that can quickly provide valuable comparative metrics. Then, having performed a comparison of the logistics costs described above, you will be in a position to know your rent position.
Note that industrial real estate values are not static over time. If, during the term of a lease, the property value should fall, it may be appropriate to negotiate for a decrease in rent. Conversely, if the value of the property should increase, you should anticipate an increase in rent at the end of your lease.
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