Real Insight. Real Estate.

There was a time when a commercial real estate owner had to worry more about losing their tenants to new competing developments than they did to bankruptcy filings. Depending on what area of the country you reside in and how battered the commercial real estate market is there, one thing you likely haven’t had to worry about is a glut of new construction adding to increased stock, and increased vacancy concerns. After all, while construction costs have come down quite a bit from their highs in early 2007, the inability to finance construction projects has crippled most developments, even in areas with little other barriers to entry. Sure, perhaps you’ve had to make a concession here, or lower the rent there, in order to maintain occupancy. But now there may be new competitive space to worry about….and its space a landlord never dreamed he’d have to compete with before….vacant car dealerships.

Many retail tenants have gone dark, stopped paying rent, and/or filed for bankruptcy, leaving many inline stores and shopping centers with glaring holes and leaving landlords scrambling to backfill space. But let’s say you are an office landlord. Can you imagine your long standing tenant leaving for a former Chrysler dealership? Well you should, because the attractiveness of these sites as firms like Chrysler begin shutting down dealerships throughout America, is quite appealing. After all, its not as if the highest and best use for a car dealership site (i.e. a different car dealership) is a likely candidate to occupy the mounting vacant space. And so developers and owners will be a lot more willing to put anybody they can find in there, which means prospective tenants may get sweetheart deals to relocate.

The incentives for tenants, of course, are bountiful. They get a free standing building of their own. They get great visibility with frontage on a major traffic corridor. And best of all, they get a boatload of parking! While it may be a slow-moving process, as this article from the Boston Globe suggests, it could be an inevitability.

Because of the vast amount of land required to park all of those cars, these sites can sometimes be so massive that they could lead to full scale redevelopment, and potentially provide perfect office building or hotel sites, thus negating any landlord concerns of potential tenant poaching. But because ground up development isn’t likely at the moment due to financing challenges, landlords could be in for a rude awakening.

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