If you are a serious commercial real estate investor sooner of later you are going to find yourself owning a property that is difficult to lease. Tenant's preferences change and what may have been attractive space a few years ago can quickly become obsolete. This problem is multiplied when the property is particularly large. Leasing to Micro-Tenants is one strategy that I've seen used to fill large hard to lease spaces. This strategy has been used in retail, office, industrial, and even multifamily and hotel properties.
Retail: Often when big box retailers move out of a space it can be extremely difficult to rent. These properties can be rented to Micro-Tenants in a few different ways. One way is to turn them into indoor flea markets and rent tables or booths. Sometimes this is even done on a daily or weekly basis.
Office: I had one client who made his living by purchasing office properties with large vacancies and converting them to executive suites. This strategy not only allowed him to fill buildings quickly, but he also was able to achieve above market lease rates on a per square foot basis.
Industrial: The first self storage properties were created from old warehouses and vacant industrial buildings. Today self storage has become an asset class of it's own, and most people don't even realize that it is just a Micro-Tenant strategy that has stuck.
Multifamily: Anytime you have a multifamily property that is rented by the room instead of by the unit, you essentially have Micro-Tenants. This leasing strategy has become the norm in many student housing complexes. It has also been employed for years in boarding houses and bed-and-breakfasts.
Hotels: I know that this one might not seem possible. Hotels were already rented by the room, so how can you get any smaller? Well for this one I just have to show you.
The one downside to this strategy is that it is much more management intensive. Instead of signing a new lease every 5 years, you might be signing a new lease everyday. I once managed a 875 unit self storage facility, in which it was common to sign 2-3 new leases in a day. In case you're wondering, this property had previously been a large industrial property that had been converted to this Micro-Tenant use. Here in Reading, PA there are several opportunities to convert large vacant spaces to accommodate Micro-Tenants. Have you considered this option for your vacant space?
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