Pittsboro Commercial Property Manager Eric Andrews explains in this video that commercial rent prices are probably not going up for anyone in 2020. However, Eric does build in protections for landlords in lease agreements in case there is inflation, which is very possible in the upcoming years. Additionally, real estate prices in the area are very likely going to continue to rise and that means rent will rise a little bit as well.
Speaker 1: Is commercial rent going to go up in Pittsboro in 2020 or 2021, or 2022?
Speaker 2: It’s not going to go up in 2020, that’s for sure. COVID 19 has made a significant on commercial rentals right now. They can’t decide when they’re going to be open or when they’re not going to be open. And rent is a constant. Obviously our restaurants are really, really suffering. We just got notified that we’re going to have a vacancy in one of our restaurants, almost 10,000 square feet and we’re going to have a vacancy there. Those, those people wanted date, a longer lease. Certainly this wasn’t a time to go up on rent, we’re not going to go up on rent on anybody right now.
I think long term and before COVID 19 happened, I think Pittsboro was certainly primed to go up significantly as far as rents are concerned. I mean that one restaurant space I was talking about we’re at $6 a foot and even Siler City is probably averaging $10 a foot and Spaces and Kerry and maybe some new Chatham park places, I don’t want to quote their rates, but I’ve heard 26, 28, $30 a foot. We’re at $6 a foot pretty cheap, but probably on average Pittsboro’s around $14 a foot and probably on average Siler City is around $10 a foot, which is significantly cheaper than Kerry or Chapel Hill or Apex.
So one of the things that we do for some of our commercial clients is most often we’re looking to do what’s known as a triple net lease, which means the tenant is responsible for paying rent, the tenant is responsible for reimbursing the landlord for property tax and also the tenant is responsible for repairs to the exclusions that we normally have in commercial properties in Chatham county if we take out HVAC and the roof. Those are the two biggest expenses you could have and you don’t expect a commercial tenant to pay for a $60,000 roof so those are usually exclusions.
We do make sure that the tenant is under a service contract for HVAC, because if we don’t feel as though they have some skin in the game, they can abuse and turn up the system or turn down the system. And when we all want that HVAC working, we find that we take better care of it so the service contract’s a good thing. So that consumer price index, one of the things that we’re worried about right now is with some of the relief money and people not working, we are concerned about inflation and that’s pretty unique to a commercial lease situation. If somebody wants a five year and eight year, a 10 year, like we said, we just had a request for a 15 year lease. What is a dollar going to be worth 15 years from now?
And, interest rates are really, really low and the government’s had to print some money to take care of some unexpected expenses. And so we worry about inflation. If I have a $5,000 a month commercial rental, and we’re on a 15 year lease and 15 years from now, a lunch is $5,000. I’ve not done my landlord a good service by not having some kind of inflationary index to take care of that situation. So normally what we do is we build in some increases in the rent, but then we also do an and/or provision where it’s consumer price index or, so whichever is greater of the two. That way, that way it protects the landlord and it shouldn’t be too burdensome to the tenant because if a hamburger’s 5,000 bucks, then the rent can be quite a bit different.
But most economists say, we’re not going to have that rampant inflation and I hope that we’re not going to. The economy overall is very strong if we can get back working, but we do worry. There’s been some places that haven’t been able to open. The landlords still have to pay their mortgages if they have one, they still have to pay the taxes and the upkeep if they have it. But we understand that the tenants, if they don’t have any customers, if they don’t have any business, if they don’t have any clients, I can’t imagine a restaurant running at 25% or 50%. How do you do that? How do you remain profitable if you have those kind of margins and you’re only allowed to be at X capacity.
Speaker 1: You don’t.
Speaker 2: You don’t right. Yeah. Yeah. And so will rents go down? I don’t even think it’s a question of rents going up or down.
It’s just who wants to start a restaurant right now? You know? We want to take care of the tenants that we have that are remaining. And we hope that once all this goes by, we believe in Pittsboro and we believe in Chatham county. We know it’s going to flourish, but we’re really questioning whether or not, how many businesses can go three, six, nine, or 12 months without bringing in money?
Speaker 1: Not many.
Speaker 2: Tough situation.
Speaker 1: Yeah.
