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Commercial lease commission

Discussion in 'Commercial Property' started by Jebi6a, 28th Jun, 2016.

  1. Jebi6a

    Jebi6a New Member

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    Hi,

    I am wondering what the commission % is for an agency to advertise and find a tenant?

    I own a warehouse and met with a prominent local agent in my area that dominates the rental space for commercial buildings.

    He said the standard rate is 10% of annual lease amount.

    Is this right? The 10% is just for basic ad, and with no ongoing property management. (I don't usually engage property management for commercial as its pretty straight forward)

    Any tips of advice would be great.

    Thanks
     
  2. D.T.

    D.T. Adelaide Property Manager Business Member

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    I'd ask if that 10% is for any duration? Common practice in the Commercial world is to have different amounts for different durations.

    It varies quite a bit, and is generally more than for residential leases because:
    - the lease term is generally longer so can't be made as often
    - vacancy rates are much higher, so takes specialist skill to find a tenant that suits the premises
    - is likely higher because you don't have the property management with them (ie once off income versus ongoing)
     
  3. DaveM

    DaveM Adelaide Buyers Agent & KFC Strategist Business Member

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    11% of first years rent is typical.
     
  4. Scott No Mates

    Scott No Mates Well-Known Member

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    11% + GST and adverts is pretty standard for a 3 year lease in Sydney - it is usually a lot harder to lease a business premises than a house/unit, there is different legislation which applies eg retail leases act, more information about the business is required.
     
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  5. Carrytrader

    Carrytrader Active Member

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    Yep standard and it scales up if the lease term is longer.
     
  6. blw101

    blw101 Member

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    As mentioned, % of first year's gross rent usually minimum 10% but for short lease term (<2 or 3 years) can be negotiated.

    For 8-10 year leases can be 14-15%.
     
  7. Omnidragon

    Omnidragon Well-Known Member

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    10% is fairly standard/low. And that's a once-off. The leasing fee is an annual fee on top of that.

    I recently paid 15% to find a tenant, and an additional 2-4% for management.
     
  8. iDex

    iDex Active Member

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    Is 2-4% a standard rate for management?
     
  9. D.T.

    D.T. Adelaide Property Manager Business Member

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    No way
     
  10. Scott No Mates

    Scott No Mates Well-Known Member

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    @iDex - depends on which state, size of portfolio, rent, services provided, grade of building, type of tenant (retail, office or industrial), so 2-7% are all quite doable sometimes more (+ gst)
     
  11. Omnidragon

    Omnidragon Well-Known Member

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    Yea. I've seen higher like 8-9%, but my guy isn't that high. Could depend on size of rental.
     
  12. iDex

    iDex Active Member

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    Thanks everyone, it's good to have a rough figure in mind for the future.
     
  13. alicudi

    alicudi Well-Known Member

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    Hi

    I just paid 11% commission this morning as my commercial agent found me a tenant. I will also need to pay 5% management fee if I have the agent manage the property over the 2 year lease.

    This was on an extremely cheap factory and a short 2 year lease.

    Regards,

    alicudi
     
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  14. Scott No Mates

    Scott No Mates Well-Known Member

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    @alicudi - That stings especially on a short lease.

    Just ensure that they don't double dip with collection of rent for the first month on top of having claimed it in the letting fee as part of their duties.
     
  15. alicudi

    alicudi Well-Known Member

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    Hi

    Woops...I should have made myself more clear, the negotiations were completed this morning and my offer was accepted by the new tenant but the 11% leasing commission payable to the estate agent is actually getting taken out from the rental income.

    Yes it does feel a little steep to be paying 11% considering I have normally handled all of this in-house with my other properties but this was my first factory and didn't think that putting a sign in the front window was going to achieve enough enquires (it does with my retail properties though).

    I am happy with the financial capacity and security of this particular tenant and actually quite surprised they leased my property to be honest. The agent that leased my property out gave me some background info on this new tenant so I will have to wag my tail between my legs on this one and accept the 11% letting fee.

    Regards,

    alicudi
     
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  16. Scott No Mates

    Scott No Mates Well-Known Member

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    The first month rent is insufficient to cover the comms so be prepared to stick your hand in your pocket to make up the difference.
     
  17. Shady

    Shady Well-Known Member

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    I cant really add anything to this but owning a commercial agency I can confirm 11% of the gross average annual rent is a std fee. For 5 year lease terms 13-15% is also normal but tenants are a little easier to come by so I've always agreed to leave it at 11%.
    Agree with Scott No Mates, double dipping and charging management fee on the deposit (first months rent) paid when completing the lease deal is common but wrong in my opinion.
     
  18. alicudi

    alicudi Well-Known Member

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    Hi

    It seems that my choice of commercial agent is going so far so good. The agent has opted to even wait for the 2nd months rent to be paid to cover the leasing fee of 11% and haven't asked me for anything out of pocket.

    Regards,

    alicudi
     
  19. Ross Forrester

    Ross Forrester Well-Known Member Business Member

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    I paid my agent a sliding fee on the first year of income depending on the term of the lease. 10.5% for a 3 year lease plus 1% of the first year income for every extra year agreed upon. So for a 10 year lease I would pay a one-off fee of 20.5% of the first years income.

    I manage my commercial tenants myself (non retail) as this reduces the VO's for the tenant.

    I think the amount paid is fair: especially when you consider the value of incentives you have to provide to tenants.