Achieving Higher Returns on Investment Properties with Billboards
Nearly every main road in North America hosts a billboard. Intuitively, everyone knows that companies are paying to advertise on those signs, but what most don’t know, is that marketing groups are paying rent to the property owners. From cola and soap ads painted on buildings to ubiquitous highway signs, 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 this stable, recession-proof income.
Billboards don’t take much space on property, have little impact on tenants, require little maintenance, and virtually zero tenant issues, making them a desirable, carefree leasing opportunity. And, according to Digital Signage Connection, in most cases billboards also add to a property’s resale value because they offer potential buyers an additional revenue stream beyond traditional leases.
Billboard Basics
Because property owners are most familiar with tenant-based revenue models, the billboard option appears daunting: How are billboards installed? Who builds them 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?
But billboards are a simple, and often passive, source of revenue. Basically, there are two scenarios to choose from: 1) The property owner builds a billboard and hires a marketing group to represent and sell the ad space; or 2) A billboard company or marketing group constructs the sign on the property and rents the space, like any other tenant.
Property owners must start with figuring out which scenario best suits their interest and goals, as there is significant investment involved in the construction and ongoing maintenance of a sign. But with billboards, the most common approach is the second scenario, where the signs are owned, managed, and maintained by a marketing group who pays rent to the property owner.
Standard Billboard Agreements
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 (usually a service offered by the company that built it). If the marketing group owns the sign, the property owner just collects rent. Most billboard agreements include restrictions on who can advertise– either based 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.
First steps
Once an owner decides which scenario is preferable, the first step is determining what the selected property’s zoning requirements permit or restrict regarding billboards. The municipality’s zoning regulations will determine the board’s size, whether a static or digital billboard can be erected, or if a billboard at the intended location is even permitted.
Negotiating the best deal
With billboard property rentals, rent is not set by the property owner, but negotiated between parties. In order to negotiate the best rental income, owners should have the answers to the following criteria 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 street life 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 tenant 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.
Potential Billboard Revenue
Traditional rents are usually based on square footage and set by the property owner, while billboard rent 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 figuring out what competitors are leasing billboards for, if possible.
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. Estimating rents for billboards can therefore 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, a billboard tenant is a great way to boost property revenue in any economy with little to no effort.
