What’s the difference between naming rights and signage rights?

What’s the difference and how are they calculated

The other day, while having a coffee with a client—an owner of a CBD office building—we got onto the subject of additional income streams, namely (excuse the pun), naming rights and signage rights. We found ourselves a bit lost as to what the difference is, how they are charged, and what influences those charges.

I thought, what better way to find out than to ask one of the city’s leading valuers. Being a shy person, they didn’t want to be identified but were happy to sit down with me and answer my questions.

Naming rights are just that: the lessee has the right to name the building, so anyone wishing to refer to that building will use that name. Signage rights, also just that: the lessee can place their signage on the building.

Typically, tenants lease both naming and signage rights together. On occasion, other tenants can have minor signage rights to a podium or under verandahs.

How are naming and signage rights charged? As in, is there a set method for

calculating the charge?

The quantum paid for naming and signage rights can vary significantly. Key metrics include the size, prominence, and prestige of the building, with signage rights particularly influenced by exposure to vehicles, pedestrians, or even the harbour.

What influences the rates charged for naming and advertising rights?

Rentals are influenced by the factors previously mentioned. Over time, rentals are often linked to the movement in the CPI; other times, rents increase in line with the growth in the premises rental. Mostly, though, rentals are subject to review with reference to recent market transactions.

Do they form part of the lease, or are they separate agreements?

Mostly, naming and signage rights are included in the lease, but sometimes they are in

separate documents, presumably so that subleasing or transferring those rights is more

straightforward.

Are other tenants obliged to use the name when giving their physical address?

If a tenant has taken the naming rights, other tenants are typically under no obligation to use that name when giving their physical address. However, if they choose to refer to the building by name, they must correctly use the designated name for visitors, couriers, etc.

I know you may not want to name the buildings, but to your knowledge, what is

the most expensive naming and advertising charge in the city, and what is the

range?

The highest naming/signage rights combination in the city is approximately $350,000 per annum, while some smaller buildings attract rentals as low as $5,000.

Do they influence the value of the property as much as rental rates, or is a

different cap rate used?

In theory, a slightly higher cap rate should be used to recognise that the advertising world is not as secure as bricks and mortar.

Conclusion

Naming and signage rights can be a valuable income stream for property owners.

Understanding the differences and how they are charged is crucial. If you need more

information or have any questions, don't hesitate to reach out.