You already know that land lease costs are critical to keeping your expenses in check. Trust me, your land lease costs are one of the first things that buyers will ask about your plant. So you always try to negotiate low land lease rates on new sign sites, but landowners want the highest lease rate that they can get. Depending on your market size, you may not be able to pay as much as the landowner wants. So what’s my point? Stay with me and let’s add some layers here.
In their Q1 2019 call with investors, Outfront CEO Jeremy Male said, “…if we’re selling a board in Times Square, there is a good chance that we are going to be paying $0.75 on the dollar back to the landlord. If we are selling a board in one of our smaller markets, say Louisville, there’s a chance that it is likely to be near $0.15 or $0.20 on the dollar.” We put together some anecdotal support for Mr. Male’s comment from our files. This won’t come as a big surprise to seasoned sign owners or many of their employees, but we thought it might be helpful to see some examples of what Outfront was talking about. Here’s a list of examples that show Lease Costs as a % of Revenue by Market Size.
Notice that as the market size increases, the share of revenue goes up too. This is not coincidental. As a sign generates more revenue, the sign owner can afford to pay a higher percentage of that revenue to the underlying landowner. This is especially true at the top of the Top 10 media markets (Los Angeles and New York). Lamar has historically reported that their lease costs run between 18% and 22% depending on their current revenue levels. Outfront has reported lease costs that run higher at between 25% and 35%. So what is the difference? Lamar operates in smaller markets where lease costs are generally lower. Outfront focuses are larger markets and has more transit assets in their mix where lease costs are usually higher.
Now there are always exceptions to the rule. Maybe you have to pay the City annual development fees too. That can impact how much you can afford to pay the private landowner. Maybe you’ll have to pay even more than the average revenue share to a municipality for the rights to advertise on a public facility (like an airport, subway, arena or convention center, etc.). There are numerous other factors that affect a fair market land lease rate besides market size. We’ll save those other factors for another article.
Are your land lease costs high or low for your market size?
Give SignValue a call at (480) 657-8400 or send an email to paul@signvalue.com or carson@signvalue.com if you’d like our opinion.
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