Nearly every major road in North America is dotted with billboards. We all know that companies are paying to advertise on those signs, but what most don’t know is that marketing groups are paying rent to the owners of the properties where billboards are posted.
From cola and soap ads painted on buildings to the ubiquitous signs along highways, billboards are a traditional but still valuable marketing medium. With the advent of digital signs, which offer even greater profits, owners who haven’t explored installing billboards on their properties are missing out on a stable, recession-proof income source.
Billboards don’t require much space, require little maintenance and create virtually zero tenant issues, making them a desirable, carefree leasing opportunity. And, according to Digital Signage Connection, billboards can also add to a property’s resale value because they offer potential buyers an additional revenue stream beyond traditional leases.
Because property owners are most familiar with tenant-based revenue models, the billboard option appears daunting: How are billboards installed? Who builds and maintains them? How is ad space marketed and sold? Should the sign be a traditional print billboard or a digital one? Are there restrictions on where billboards can be installed? What are the associated or upfront costs?
Billboards are a simple, and often passive, source of revenue. Basically, there are two scenarios to choose from. In the first, the property owner builds a billboard and hires a marketing group to represent and sell the ad space. In the second, a billboard company or marketing group constructs the sign on the property and rents the space, like any other tenant.
Property owners must start by figuring out which scenario best suits their interests and goals, as there is significant investment involved in the construction and ongoing maintenance of a sign. The most common approach is the second scenario, where the billboards are owned, managed and maintained by a marketing group that pays rent to the property owner.
The average lease term in the billboard industry is 20 years. If the property owner erects the sign themselves, they take care of monthly maintenance. (This service is typically offered by the company that built the sign.) If the marketing group owns the sign, the property owner just collects rent.
Most billboard agreements include restrictions on who can advertise, based either on national advertising regulations or non-competes, to ensure the billboard doesn’t damage other tenants’ profits. However, once the agreement is set, property owners have no say in what is placed on the billboard.
Once an owner decides which scenario is preferable, the first step is determining what the property’s zoning requirements permit or restrict regarding billboards. Zoning regulations will determine the board’s size, whether a static or digital billboard can be erected, or if a billboard is even permitted at the intended location.
Negotiating the best deal
With billboard property rentals, rent is negotiated between parties rather than being set by the property owner. To negotiate the best rental income, owners should be able to answer the following questions before engaging with marketing groups.
1. How many cars pass the property? There are services to help establish traffic volume, both vehicular and foot, where a proposed sign will be put up. Remember that highways aren’t the only attractive locations for billboard companies. City spaces on busy roads and locations with a vibrant pedestrian presence are also desirable.
2. Does the potential billboard location have good visibility? Good sightlines make the location more desirable to rent. The longer a board can be viewed or the less obstructed the view, the better. Advertisers are counting on the fact that their audience can’t click to skip the ad, turn it off or flip the page. Property owners must also be willing to partner with tenants to ensure good visibility.
3. Is there is a demand for a billboard in the property’s area? The property owner must determine if the location is suitable and/or desirable for a billboard. Are there many billboards already in the area? Are many of them digital? Has a demographic analysis been done on the property’s neighbourhood? Knowing these answers will help negotiate a higher rate.
Traditional rents are usually based on square footage. Billboard rent, on the other hand, is based on size, format and the predicted advertising revenue. Figuring out fair market value for this type of leasing opportunity includes exploring all options for billboard tenants and, if possible, figuring out what competitors are leasing billboards for.
Marketing groups negotiate rent based on their calculations for advertising revenue. The more they expect to make, the higher rents they’re willing to pay. That means estimating rents for billboards can be complicated, but if a property meets all three core criteria and the zoning allows, the potential for income is high. For example, an Edmonton industrial property along a major roadway has exposure to 21,900 vehicles per day and collects $7,775 in annual rent from its billboard tenant.
Ultimately, billboards are a great way to boost property revenue in any economy with little to no effort.
Chad Griffiths is a partner with NAI Commercial Real Estate in Edmonton and is the writer of a weekly blog at edmontoncommercial.com. For more, contact him at 780-436-7414.
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