Why top real estate experts often disregard "market comparables"
Updated: Oct 6, 2021
When I was a kid, I really wanted to go to a Pearl Jam concert. When my parents wouldn't let me go, I argued that my friends were all going - to which my dad replied "if your friends jumped off a bridge, would you jump too?"...ugh...dad logic. However, that is exactly what many real estate people do when they rely heavily on lease comparables, and it's premised on the same childhood argument. While comparables are an easy way of referencing what others are doing, it may not be relevant or beneficial for the situation at hand. For example, landlords will typically utilize favourable lease comparables (ones that were poorly negotiated by tenants) while tenants will seek to use lease comparables with terms in their favour. More often than not, the comparables essentially cancel each other out. Both parties are referencing and relying on what "others" are doing, which can be quite subjective and arguably lazy. Moreover, the retail market is a spot market where dynamics can change rapidly depending on competition and levels of interest. Often, a better strategy is to ascertain the landlord's backfill tenant options while evaluating other lease opportunities available to the tenant. This research, in conjunction with applying local market and industry knowledge, creates more value. These factors set the rate and lease terms more than any comparable ever could. This is why its important to retain experts who can apply and leverage their local market knowledge and conduct the research. Even if they reduce the rent by 2%, that's more than enough to justify their cost on virtually any commercial lease.