What landlords can learn from techies

Now and then, I get this urge to make the world a better place. Then there are these quirky ideas that come along.

There is legend that says Bill Gates once commented on what the car industry could learn from the software industry. Well, seeing how the car industry has turned out, perhaps those words could have been heeded. But in any case, I think another industry can learn from the software industry.

The turmoil that the world is in has hit home in some ways--there are a number of new small businesses established in mid-2008 that have suffered. Conceived at a time when the economy was booming, they had committed to increasing rents, and now are subject to competition enjoying lower rents and falling revenues. Spas, restaurants and retail outlets are all victims to this situation, which in a sense is not directly related to their business model.

The situation is almost a Catch-22 as these businesses cannot operate without premises, and good businesses failing for such reasons seems like such a waste. Landlords, on the other hand, want to realize as much rent as possible. In a perfect market, that makes sense but how many businesses can pick up and go? On the other hand, landlords have bottomlines to meet and inflation eats into those bottomlines. But then again, if there are no tenants, then it is back to the drawing board.

How do we reconcile those different aims? I think this is where the software industry can show some pointers.

Some software has now attained the same level of reliance as that of infrastructure. Without such software, the business will fail. Therefore the customer wants to ensure that the maintenance continues as long as possible. The software manufacturer, on the other hand, needs to ensure it can keep up with research and support and inflation. Therefore, the solution has been the inflation rider clause, which states that as long as the customer wants to keep the software running, the yearly fees may increase by a rider that keeps the software manufacturer sufficiently motivated.

I think at this painful time, the commercial rental market can learn from the software industry and work toward long-term contracts that are fair for both parties instead of the wild fluctuations.

Happy to hear your thoughts.