Franchise vs. Chain – Any Effect on Commercial Real Estate Professionals?

 March 8, 2019

By  Guy Gray

If there’s one thing property managers don’t take for granted these days, it’s a good tenant. They might as well be sitting at the end of a rainbow, because commercial real estate professionals treasure them. Bad tenants, on the other hand, can be a major headache and cause tremendous damage to your portfolio’s future prospects.

The tenant’s actual business model is one huge factor as to whether they will be a “good” tenant or not. Is it sound? Does it have a long-term outlook in place? Whether the tenant’s business is sustainable or not can dictate whether they’ll be able to pay their rent for the duration of their lease. It’s on you as the CRE pro to decide whether you trust the sustainability of that business’ model enough to give them a space.

This is particularly true when it comes to deciding on franchise vs. chain models. Does either have any effect on property managers and other commercial real estate professionals? Let’s take a look.

The Franchise Model

Should you rent out your spaces to the “McDonald’s” of the world? There are definitely advantages to this model, from the CRE Pro’s perspective. For one, the franchise will have corporate backing and all of the name brand recognition that goes along with it. There’s practically a built-in customer base for this tenant — it’s a proven business — which means there’s somewhat less of a risk involved. Then again, there tends to be a higher initial cost with the franchise model for tenants. Marketing and branding also limited, creativity-wise. So the potential is a bit lower, but it’s debatable whether that even affects a tenant’s ability to pay the rent.

The Chain Model

With chain models, on the other hand, the financial responsibility is more on the tenant since there is no corporate or parent company. This can be a good thing in some ways, as chains tend to have more local authority and flexibility, as well as lower costs since they aren’t paying for the brand name. The risk is higher for the chain model, but the potential is higher as well. You could run the risk of a tenant running on hard times and struggling to pay the rent, or you could have a tenant expanding to multiple offices or locations and turning to you for help.

The Importance of Market Insights

Both models have their advantages and drawbacks, but they each can have an effect on commercial real estate professionals. The last thing you want is to worry about tenant rent payments, replacing tenants and/or having properties sit vacant. That’s why it’s so important to dive deep into analytics and market insights about the particular tenant you’re considering. With commercial real estate software like Quarem, this is easier than ever. You’ll be able to establish market rates, look at trends for similar properties and industries and more.

Franchise or chain: which is better for you as a commercial real estate professional? With the right market insights in place, you’ll be able to make the decision that’s best for you. To see Quarem in action, request a demo today!

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About the author 

Guy Gray

Guy Gray serves as Chief Operating Officer overseeing our technology and client services teams. He is responsible for guiding Quarem application development, networking and security, as well as new client implementations.

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