Industrial Owners Will Take Credit Over Rent

Non-credit industrial tenants might not even be able to buy their way into an industrial property. Industrial vacancy rates are at record lows and the supply shortage has driven rental rates to record highs. With users competing for industrial space, owners are beginning to prefer credit tenants to a top-dollar rental bid. Credit tenants are lower risk, and could be worth forgoing a little rent for security.

“A credit tenant is a lower default risk, which can increase a property’s value and insulate the landlord from any future market volatility,” Rick Ellison, executive managing director of industrial brokerage and global supply chain solutions at Cushman & Wakefield, tells GlobeSt.com. “I think it boils down to the fact that landlords have a choice. It’s become common for multiple tenants to compete for the same availability. Landlords are choosing their best option.”

For a landlord to choose rent over credit, the rental rate would need to offset the risk, and with record rental rates that continue to rise, landlords will likely secure healthy rents even at a lower rate. “The rent premium would need to make up for the quality differential and there would need to be a reasonable degree of confidence that the tenant will perform,” says Ellison. “Generally speaking, in a normal market, a landlord might consider a slightly lower rent from the better quality tenant but in this market landlords are attracting the higher quality tenant without discounting the rent. In a weaker market landlords consider lower quality tenants because they aren’t confident a higher quality tenant is around the corner and they want to fill the vacancy.”