The rent-to-sales ratio is expressed as a rating, which can affect property value. It is a common indicator used by investors to measure the performance and outlook of a potential acquisition by dividing the business’ total annual rent by their gross annual sales.
A vacant property is an investor’s worst nightmare, and the rent-to-sales ratio helps tenants decide if a location makes economic sense for their business. For a tenant, operating between a six to eight percent rent-to-sales ratio is considered healthy, where the tenant’s sales performance justifies the rent that they are paying the landlord.
For those with a higher ratio, the property is more likely to suffer during economic downfalls. With this in mind, it makes sense that a business with a lower rent-to-sales ratio tends to be more profitable and is better positioned through market fluctuations. So, how should investors respond to a high rent-to-sales ratio?
Click below to learn how an investor can plan ahead to receive a healthy rent-to-sales ratio.