Renting office space to smaller tenants VS bigger tenants?

Question

I am a 10 year residential real estate investor but I have limited experience with commercial real estate. I own 3 commercial properties all purchased in the last 3 years so I am still learning as I go

What is the opinion on renting 400-800 sq ft offices VS leasing the entire unit of 1500-2000 sq feet to one person?

When I purchase vacant buildings, I am very eager to get tenants after we rehab so I am usually willing to break up bigger spaces to accommodate multiple smaller tenants.

Should I be more patient on waiting for a bigger tenant or can you do well tailoring to small tenants? I have been offering roughly $1.00/sq/ft for larger spaces and $1.40/sq/ft for smaller spaces. So the cash flow when fully leased should still be good. The only negative I see is more tenants more work and more turnover.

Thoughts?

Ronald Rohde · Answer

Its just risk vs reward IMO.

Smaller tenants offer diversification and faster cash flow. A single larger tenant (if they are reliable) can be a much better investment with less headache. On the exit, buyers will value the exact same thing. A single tenant building has pros and cons.

What fits your goals?

Adam Craig · Answer

Good insight thank you. After I get the buildings partially filled I tend to have more patience and wait for bigger tenants. But when they are 100% vacant, I end up catering more to the smaller applicants because I have so many.

I might plan on doing a mix of bigger and smaller and see how it goes. Thanks again