Get Started

Possibly more important than getting a good location is getting a good deal for that location. The benefits of a good location could be wiped out by a rent that is too steep.

There have been many cases of well-located businesses that failed because of high rental rates or poor relations with the landlord, says Deus dela Cruz, a professional locator for members of the Association of Filipino Franchisers Inc. and Mang Inasal.

Your negotiating skills would have come into play in order to get the rent you are comfortable with. Before negotiating with your prospective landlord, however, there are some things you must do first, says dela Cruz:

 

A. RESEARCH

1. Foot traffic

Whether you are negotiating with the malls or independent landlords, be prepared with your research. For example, when scouting for prospective sites, make it a point to visit the location several times.

Go to the place at various times of the day. Do not visit the place only on “strong” days like Monday and Friday; go also on traditionally lean days, such as Tuesday and Thursday. This will give you a clearer picture of the amount (whether pedestrian or motorist), and kind of foot traffic in that area.

Visiting the site at different times of the day, on different days, will allow you to determine the sustainability of the location in terms of foot and motorist traffic. If your product or service is directed to the mass market, look for a site that is heavy in foot traffic.

For more upscale establishments, look for a location with high motorist traffic. In this case, you have to have a location where parking is available.

2. Other businesses in the area

You must also observe the other commercial establishments in your desired location.

Dela Cruz says that while most people look at traditional indicators- like competitors in the area as well as the presence of offices, hospitals, churches, and other places where people tend to congregate – there are other more subtle indicators one should look at.

For example, dela Cruz says that it would not be wise to locate a high-end restaurant in an area where there are pawnshops. Instead, the restaurateur must put his business in a site near banks. “A pawnshop in the area tells me that people there are probably not spending so much,” says dela Cruz, “while in an area where there is a bank, people usually have money to spend.”

Ask whether the area is prone to flooding, about the people who usually patronize the other establishments in the general vicinity, the peace and order situation, and anything that would give you more information about the place.

These details, dela Cruz says, could give you leverage when negotiating the rent with the landlord. For example, if the property is situated in an area that gets flooded during the rainy season, you can request the landlord to raise the floors at his expense. Or you can negotiate to take on the task, with the cost deducted from your rent.

Know What and How to Negotiate

Compared to mall administrators, independent landlords area usually easier to deal with, says dela Cruz. However, keep in mind that every negotiation with independents is a unique one. In any case, approach independents and mall administrators with equal courtesy and politeness.

“People in the property sector tend to move in small and around the same circles,” says dela Cruz. “Chances are, the landlord you’re currently dealing with knows another landlord you previously did business with, so having a good reputation is very important.”

4.  Haggle security deposit, advance monthly payments and the escalation rate


You can haggle these items with the landlord: security deposit, advance monthly payments, and the escalation rate. Dela Cruz says it is possible to negotiate that the security deposit and the advance payments be given and applied in the first few months of operations, instead of paying them upfront at the start of the business.

This gives the entrepreneur time to generate revenues, without the monthly rent eating into the business’s sales. In addition, this will maximize the earning power of your money, as it is put to use immediately. Note that the number of months that could be advanced to your landlord in rent must not exceed three months, says dela Cruz.

As for the escalation rate – or the rate by which your landlord could increase the rent – the legally mandated ceiling is 10 percent. It may in fact be more prudent in some cases to negotiate to lower the escalation rate, instead of lowering the rent per se.

It is more difficult, although not impossible, to negotiate the same items with mall administrators because they follow a standard rent structure, says dela Cruz.