Rents for commercial spaces continue to rise for various reasons. Among these reasons are speculations of higher prices for commercial spaces, as well as an increase in demand for space from national chains and a decline in small spaces. Additionally, most commercial property owners now prefer to rent their properties to national companies. The sharp increase in commercial rents is a threat to the survival of small businesses in the cities.
A recent study by the UK’s Institute for Local Self-Reliance shows that the sharp increase in rents cuts across all communities in the UK. However, local businesses in lower-income communities are the worst hit. Local governments have a role to play in protecting the interests of small business owners. Here are some strategies that cities can implement to keep commercial rents affordable for local businesses.
One of the solutions to the rising threat to small businesses is empowering business owners to buy their commercial spaces. Most small business owners are at the mercy of property owners. Large companies offer better rates and consistent rent income to property owners. Hence, property owners are reserving commercial spaces for national companies. One of the things that cities can do is to organize programs that will enable local business owners to access loans to buy buildings.
Additionally, real estate investment cooperatives can help small business owners to buy commercial buildings in their respective cities. Most investors join such cooperatives for residential housing, but cooperatives can help foster joint ownership of commercial spaces. Each investor in the cooperative would have dedicated space to run his or her business without fears of rising rent charges.
Commercial tenants have limited power when negotiating a lease for their office spaces. Most local businesses pay rent on a monthly basis. Hence, property owners give such entrepreneurs short notices to vacate their spaces in favor of larger companies. Commercial tenants cannot control the lease terms that property owners set. However, local governments can intervene in lease negotiations and regulate the lease renewal terms.
Most municipalities have been formulating policies to protect residential tenants from displacement. However, similar policies are lacking in commercial lease negotiations. Municipalities should start implementing policies that enable commercial tenants to sign long-term agreements with property owners. The policies should restrict landlords from breaching such agreements.
One way to keep rent for business space in Manchester and others cities affordable is by changing the approach in renting publicly owned properties. Local governments should consider the current threats to small businesses and prioritize them when allocating spaces in such buildings. Cities can give favorable terms to small businesses to enable them to retain their spaces in city-owned buildings. For instance, the cities can give tenants options to extend their lease terms before considering other tenants for their spaces.
Cities are also involved in developing new commercial spaces. Given the current situation in the market for commercial spaces, cities can allocate specific regions or spaces to local businesses. A specific portion of spaces in all new developments should be set aside for local businesses. The policy can be extended from city projects to private projects to ensure that local businesses remain in the cities.
As the rent for commercial space in some cities rise, some landlords have been holding off renting out their space as they wait for the highest bidder. Landlords have limited chances of adjusting their rent prices after signing lease agreements. Hence, they have been holding out after small businesses vacate, hoping that large national companies will offer more profitable deals. Municipalities should consider imposing fines on such landlords.
The fines can be imposed on commercial spaces that have been vacant for a month or more. Birmingham has an ordinance that proposes a fine for any commercial space that stays vacant for more than 30 days. Edinburgh has a similar ordinance but extends the grace period to 6 months. Other cities in the UK should consider adopting such ordinances to enable small businesses access to any vacant space in the city.
Cities have a critical role to play in protecting commercial tenants, especially local business owners. The majority of small business owners have limited resources to buy commercial buildings. However, organizing them into cooperatives and enabling them to access funds will increase their power in acquiring their own spaces. Municipalities should also consider formulating and implementing new ordinances that protect commercial tenants in lease negotiations. If municipalities ignore the current trend in commercial rents, large companies will continue to displace local businesses in the cities.
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