• Be Careful About Land Lease Increases

    Insider sees lots of out of home land leases with fixed minimum rent increases of 2-5%/year.  These leases are a bad deal for out of home companies because land rent increases faster than inflation and industry revenue growth.  Inflation averaged 2.2%/year for the past 17 years.  Nominal out of home revenues grew 2.8%/year during the same times period, just barely above the inflation rate.  If your land lease increased more than 2.5%/year over the past 17 years you were eating into your margin because your lease was increasing faster than your ability to increase your billboard’s revenue.

    US inflation rate versus US nominal out of home revenue growth.  2000-2017

    So what’s the solution if your landlord wants an increase?

    • Limit the annual rent increase to 1-2%/year.
    • Index the annual rent based on changes in the consumer price index.  That way you know your land rent will never exceed the inflation rate.   You should be able to renew your annual billboard contracts at a rate which equals or exceeds the inflation rate.
    • Set rent at 10-20% of gross revenues so that it increases and decreases with changes in the economy.

    Paid Advertisement

    Print Friendly, PDF & Email

    Comments are closed.