As a commercial property owner, you have the option to generate revenue by renting out space to tenants. But have you thought about renting out billboard space on your property? This could serve as an added revenue stream, improving your bottom line and offsetting your operating expenses. But is renting out billboard space a good idea?
What you need to know about billboard rentals
Commercial leases are generally pretty straightforward. As a property owner, you own a building and allow a tenant to occupy part of that building in exchange for an ongoing rent payment, but you still own the space that tenant is using.
With a billboard rental, it's different. In that situation, you, as a property owner, own the property in question -- but you don't own the billboard. Rather, a sign company owns the billboard, and that sign company leases that billboard space to advertisers.
Furthermore, unlike regular rent, billboard leases are usually set at a fixed price tied to an existing index, or they're paid as a percentage of revenue generated by the billboard itself. Under the latter setup, you can generally expect a return between 10% and 18% of that revenue -- more for a digital billboard.
Pros and cons of billboard leasing
If you allow a billboard on your property, there's the potential to make more money -- without having to give up square footage within one of your buildings. That's reason enough to consider a billboard lease.
But there's a downside to consider, too. For one thing, as a property owner, you may not get the authority to dictate what content goes on that billboard. Granted, the billboard can't violate local code, but if the product in question is one you don't support or one that could turn other tenants away, you may not get a say in it.
Furthermore, since the sign company that owns the billboard is responsible for maintaining it, be prepared to give that company reasonable access to its property. That could mean allowing roof access on your building, which potentially exposes you to certain liability. You'll need to check with your insurance company before entering into an agreement to lease out billboard space and make sure you won't incur added costs in the process (or, if you will incur added costs, you'll need to make sure you're OK with them).
But perhaps the greatest risk of leasing out billboard space is an inability to further develop your property down the line. If you're in an agreement that lets a sign company lease part of your property, you can't just kick it out when a new project hits your radar. Granted, you may be able to negotiate certain provisions into your lease agreement that allow for the removal of a billboard as needed, but that may be difficult to come by.
The bottom line on leasing out billboard space
Renting out billboard space is a good way to generate extra revenue from your commercial property. Just be aware of the drawbacks involved before jumping into an official agreement. If you're certain you won't be further developing your property, it could pay to sit back and collect the extra money. But if your plans are uncertain, you may be better off waiting until they're more concrete so you don't lock yourself into an arrangement you can't get out of.