10 Ways of Optimizing Rental Returns and Recovery in Commercial Property Management and Leasing

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Vacant office space requires real strategy

In commercial real estate brokerage there are many things you can do to help landlord clients with income and rental growth.  The principles and ideas behind income performance in any commercial or retail property investments are one or more of the following:

  • Stabilize rental cash flow
  • Improve rents over time
  • Improve property value
  • Lower the risk factors
  • Optimise the tenant mix
  • Address the impacts of any vacancy

When a commercial real estate agent understands how to do all of those things comprehensively, they can really provide some valuable services to the clients that they act for in their property market.

The processes are very specific; real knowledge is required when it comes to property improvement and optimisation; the income recovery process is part of that.

Let’s say you are looking at a property for a client for the first time.  Here are some ideas and bigger income matters to look into as part of assessing a commercial property investment and its performance:

  1. Market rental – Understand the levels of market rent for the property type and the location. Compare those figures to your client’s property.  Have due regard for property improvements and age.
  2. Rental income recovery – If you look at a group of tenants in a property, you can see many different rental recoveries. Make sure that all rental recovery methods are up to date particularly with rent reviews, options, and percentage or base rents.
  3. Incentives – If incentives have been given to a tenant for any particular reason, check out that process. Are the incentives accurate and up to date?  When do the incentives stop?
  4. Arrears minimization – In larger properties today there will be arrears issues to handle. Work closely with tenants to ensure that rents and arrears do not get out of balance or become too large.
  5. Licences for special areas – Some tenants can be given the use and or access to special areas outside of their demised premises but in the same building. The other areas will still attract a rent; the risk of that extra space(s) use will also require management under a lease or licence document.  The most common licences today in commercial investment properties will usually be that for storage, car parking, antennas, or cabling.  All of those things should be documented in a licence for which a reasonable rent is charged.
  6. Electricity recoveries – If the tenant is supplied with electricity from the building grid then the landlord will have a recovery process underway. Look for the recovery methods and understand how they occur.
  7. Cleaning and common area recoveries – If the tenant is using common areas or is having their premises cleaned as part of occupation then the recoveries will be relevant; they should also be accurate so check out the numbers and processes that apply.
  8. Signage rents – A tenant related sign should incur rent.  Signage rent is a valuable third income stream in a commercial property.
  9. Car parking – Tenants should pay for car parking and that rental should be aligned to the location and property type. If the building and car parking is in the center of the city, then a premium for onsite parking should apply.
  10. Outgoings recoveries – Depending on the rental type, outgoings will be a part of tenant charges and recoveries. Compare the outgoings recoveries by location and property type so you know that the averages apply.  A building with high outgoings will be harder to lease or retain tenants.

So there are many things to check out as part of assessing property investment performance and income optimization.  Are you ready to ask the right questions?

Podcast 217 – Commercial Real Estate Snapshot

Here are 3 more topics for commercial real estate brokers and agents
around the world. 1. Why you should prove your competence, 2. How to
negotiate a counter offer, 3. A simple guide to shopping center
operations. These are commercial real estate training programs by
John Highman.