Prime Tenant

Definition of "Prime tenant"

Written by

Robert Leonard

Berkshire Hathaway HomeServices New England Properties - Danbury Regional

The phrase cool by association is something that we are all familiar with as we probably encounter it during our daily lives. In real estate, this principle can be exemplified through the term prime tenant. To define prime tenant, we have to look at malls, business developments, complexes, or even neighborhoods as the prime tenant is the big-name, leading, well-known business that rents office space. 

In most instances, a prime tenant can get a discount for renting an office space simply because of how their name association will affect the building itself and the other tenants. Prime tenants can also influence how the rest of the office building is rented out and, depending on just how important their brand is, they can veto rival companies or prohibit companies with an inadequate representation on the market as they, in turn, do not want to be associated with bad names.

When a company is browsing the commercial real estate market for the ideal office space, working in the same building with an international business might motivate them to spend more on rent than if the other tenants were less known. That is how the principle of cool by association is applied in commercial real estate. A prime tenant is also known as the anchor tenant, draw tenant or key tenant.

What is a Prime Tenant?

A prime tenant is Nike for sports apparel, or Karl Lagerfeld for the fashion industry when applied to an office building. It’s the name that any commercial real estate developer wants to see on their building; A big name that the general public knows. The prime tenant is the biggest name you see when you look at an office building, simply put.

But what does a prime tenant do? Well, as stated above, it draws other businesses towards that office space that want to be associated with the big-name company. Prime tenants are usually thoroughly analyzed and sought after by any office space developer. Whether it’s a skyscraper or an open space development, having a prime tenant is the goal of a property manager.

A company that’s on the market to find an office space usually considers various things before signing the lease. From location to amenities, means of transport available, and foot traffic are all things to consider aside from the price tag on that office space. However, an inspiring thing to do before closing a lease agreement is to find out as much as possible about the prime tenant of the office space development. As the other names suggest, a prime tenant draws not only other companies to office space but clients, maybe a certain type of clients with a certain type of income. Those clients will circulate in and around other businesses and might be curious enough to browse during a coffee break. 

This is why a prime tenant is so important for the commercial real estate market. Usually, where they go, the clients go, and any company aiming to succeed wants to attract more clients.