Setting lease term and amount for commercial office tenants.

[Travis Reed]

I finally pulled the trigger last year and purchased a 5000 SF commercial office with 3 tenants.  The leases are short at 2 years each. Some due to expire. I do not think any of the tenants intend to leave. 

My thoughts are to increase rent by a reasonable 3%-5% at every renewal like a single family home, however, Should I be pushing for longer leases? 3 year? 5 year? Should longer leases be offered with a cheaper rent or maybe cheaper rent with cheaper yearly escalations? I hesitate to offer a cheaper rent and then lock it in for 5 years with no escalations but i also do like the idea of a 5 year lease! 

Thanks for the help and advice!

[Patricia Steiner]

What does the market command for commercial property?  Rather than choose an "reasonable" percentage at random, look to see what other comparable properties are offering.  There are plenty of online commercial sites that provide the landlord's terms so you can ensure that you get every dollar that your property in a specific market generates.  

I recommend that you speak with the tenants who leases are expiring soon to learn if they will be renewing or not.  Don't assume anything.  It's also a great time to ask what term length might work best for them rather than propose one; you have the last word on it but demonstrating concern for the tenant's business and needs builds loyalty as well as market intelligence.

Congrats on your first commercial property.  Do the homework to know what your market is commanding to maximize your return.  Best...