As you work for different landlords with different property types locally, the market rents, and the occupancy costs vary from property to property. In this audio program, John Highman shares some ideas to help you improve your leasing market awareness and negotiation outcomes.
Of course you can work for either landlords and tenants in today’s property market. They can both be valuable clients to work for from different ends of the leasing equation. It doesn’t really matter whether you work for landlords or tenants, but it does matter as to how you optimize the rental position of your client as part of the leasing process.
As you strive to achieve better results in the leasing market today, consider the special factors of lease occupancy where you can add value to your client. Most particularly those factors should include the following:
– level of market rental
– lease duration
– lease documentation
– optimal use of leased space
– sensible balance of occupancy costs to area occupied
– vacancy minimization
– the budgeting of occupancy costs given current market rentals
In this audio program, John Highman shares some specific income growth strategies that you can use in commercial and retail property leasing today.
If you know about the supply and demand for property locally, you will understand just how to connect the right tenants to certain vacant properties in your city or precinct.
In this audio program, John Highman talks about the market trends that you can work with in commercial real estate today. Understand that the best properties to lease will always be the better quality ones in the locations that are attractive to businesses.
As a leasing agent you are frequently looking to lease vacant premises in an office building and CBD location. Many enquiries and calls today will or should come to you from the marketing campaigns you create; the rates of enquiry for every high quality leasing opportunity should be tracked.
The important issues in capturing enquiry are in qualifying the enquiry, in understanding what tenants are looking for and when they require it. Successful leasing agents will have a large database of well qualified tenants and business owners that they can approach when the right property comes to market.
That being said, I have heard many leasing agents complain over the years about the problems of chasing after the specific leasing requirements of tenants only to find that the tenant has found something or will not move on an ideal property or location. The fact of the matter is that you should only go so far in helping tenants because they are not fully committed to you; they can waste a lot of your time asking about certain properties, and at the same time be talking with many other agents. Set the limits on just how much time you should spend on any tenant lease enquiry.
The message here is if you control the quality buildings to lease, the enquiries will very likely come to you in abundance. Good buildings for lease will drive better rates of property enquiry. That then makes it a lot easier for you to fill your database with the right tenants and business owners.
The tenant qualification process is quite special and direct. Here are some of the main facts and questions to explore in finding out what the tenant needs, and to identify how genuine they are in looking for a new property to occupy:
Decision Maker – Understand who you are talking to and their role in looking for a new property to lease. With business type tenants it is common to see some person in middle management tasked with the process of finding properties to ‘short list’. Ideally you want to be talking to the key person in the property decision process.
Essential location – Some businesses must be located in particular precincts and zones of a city. There will be reasons for those choices and points of focus. I like to ask about ‘primary’ and ‘secondary’ locations so I can create a short list of properties in each case.
Rental budget – The rent for a property is not just a single amount of money; added to that figure will be the outgoings and sundry charges geared to occupancy. The type of lease will dictate how the rents and outgoings will be charged and paid.
Improvements – The office fitout will have desirable design factors to suit the way the tenant undertakes their business, interacts with staff, and serves customers. Car parking will also have a factor of priority in final property choice. How many car parks do they need?
Timing – Understand when they are looking to make the move. You can then integrate the issues of fitout construction, and the moving of the business.
Given all of these things I like to ask the tenant directly about what other properties they have already seen; it is likely that they have approached a few leasing agents already and on that basis I don’t want to waste my time in quoting things that will not suit or they have already seen. Protect your time and focus on key questions to get directly to the tenants leasing requirements.
In commercial real estate agency the tenants that you talk to must be qualified before you spend a lot of time with them. Most tenants looking for new or alternative premises to occupy will have spoken to quite a number of local property agents; on that basis you are just another person to get information from. Asking the right questions will help you work with the right tenants in the right way.
Most towns and cities will have a good supply of vacant premises available. We have some good listing stock to work with. If you want to dominate the local leasing market for your property type, it is wise to focus on the best property locations and the quality properties. In that way you will move more listings and do so faster.
Here are ten questions to ask prospective tenants before you get deeply involved in matching listings and undertaking property inspections:
Find out just who you are talking with and determine that they are the principal decision maker that is looking for property to lease. This issue gets more complex when you are dealing with a company or corporation. You may be talking with the local business manager but they may have little decision facility.
Understand their property requirements in location, improvements, car parking, area of premises, permitted use, and rental budget. These simple facts will help you with creating a short list of premises to look at.
The services and amenities in a property may be of relevance given the way the business or tenant operates. Staff and customer numbers will place some pressures on property choice.
A lease can be negotiated on the basis of gross or net rent. Through direct questioning you can see what rent types could suit the tenant. That will then influence the choice of property, the lease negotiation and the initial term of the lease in years and or months.
Ask them about any contacts they may have made with other agents. If your market is dominated by open listings it is likely that the tenant has looked at a lot of your listing stock already; on that basis you can see your commission from a lease agreement ‘disappear’ due to another agents introduction to the same property earlier.
The ideal timing of property changeover will give you an idea of just how important the move of premises is to them.
When you have got these facts sorted and identified you can move to the next stage of property selection and inspection. A wise leasing agent will get all the leasing the facts on the table and clearly identified before the hard work starts in property identification.
Selecting a tenant in a commercial or retail property can be a challenge. Vacancies can occur within the property from time to time throughout the year. Some of those vacancies will be expected, whilst others will be the result of a tenancy default.
When you manage or lease a commercial or retail property, it is wise to incorporate a lease management and tenancy mix strategy into the property business plan for the property each year. The lease management plan will help you when it comes to finding and negotiating with new tenants to the property.
Given that each particular property is unique, and every landlord has special priorities relating to their property investment, the selection of a tenant to fill a vacancy is quite important. Here are some tips that can be applied to selecting a new tenant for your commercial or retail property:
In an ideal world, you want the tenant to be of good quality and high profile. The tenant of this type will bring stability and benefits to the overall tenancy mix. Other tenants in the property can benefit from a new high profile tenant entering the property precinct. For this very reason, franchise tenants and the associated branding they take with them will be quite desirable in the tenant selection process.
The landlord for the property should be encouraged to establish a standard lease that matches their property intentions and property investment. This lease can then be easily used when you negotiate with a new tenant. It should be noted that many solicitors acting on behalf of property clients do not understand the property, its location, or its functionality. Encourage the client’s solicitor to visit the property first before any standard lease is put together.
The age of the property and the intentions of the landlord will have impact on the refurbishment and renovation activities to occur. The lease for the tenancy should be prepared with due regard to tenancy renovation, and property refurbishment. It is not unusual to ask the tenant to renovate their tenancy every three or four years as part of occupancy. A condition can be placed in the lease to this effect.
Any tenant seeking to occupy vacant premises should be able to provide some history occupancy in another property. It is desirable to talk to other landlords or property managers to ensure that your intending tenant is of high quality. If on the other hand the tenant is a new business, then you will need to satisfy yourself when it comes to business stability and long term occupancy. When that is the case, the form of guarantee or bond that you use in the leasing arrangements will be quite important.
The prevailing market conditions will have impact on market rentals, rent reviews, and lease options. It may also be the case that a lease incentive will need to be provided to attract a tenant to the vacancy. Assessing market conditions will therefore be critical to the leasing negotiation and finalization.
Every commercial or retail property will have standards that apply to hours of trade, and terms of occupancy. They in turn will have impact on property access, security, customer access, and operational costs. Any property that is closely geared to higher traffic flow such as that in a retail shopping centre, will have higher property operating costs to consider and structure into the lease rental.
When you create a good lease for a property and the landlord, it strengthens the overall investment for the long term and helps the property sell if and when that is to occur. Taking shortcuts when it comes to lease documentation will reflect badly when it comes to property performance and tenancy mix stability.
If you want more free tips for Commercial Property Agents you can get them in our Newsletter on this site.
In commercial real estate, there is a lot of difference between the servicing requirements behind exclusive listings versus open listings. Any open listing situation is virtually an experiment on the part of the client and they will have minimal commitment to you as the salesperson or agent helping them. The client will generally be listening to many agents and trusting none.
So it is the exclusive listings that will bring us better quality stock and trusting clients. That being said, it is important that we give our clients reasons to choose the exclusive listing method of sale or lease. As part of the sales presentation or pitch process, you should have some solid reasons to recommend an exclusive listing process with your agency. Why are you better than other agents?
Many agents will choose or recommend the exclusive listing method to the client, and then make some fairly generic statements regards the reasons to choose an exclusive listing process with their agency. Just about every experienced property investor has heard a variation of the following:
We know the local area very well.
We have sold or leased a lot of property recently.
We have been in the area a long time.
We are the best agent in the local area to sell or lease this property.
We have the property knowledge to do the job for you.
We have good people in your agency that will move the property for you.
We have relationships with the other agencies across the country and they will also market your property.
We will market the property and our cost.
We will fully target your requirements of price range and timing.
We will lower the commission because you are a good client.
I will keep you fully informed.
We are the best agency to sell this property for you.
None of this will make an impact on an experienced property owner or business proprietor. The listing decision will be made on your relevance to help them and the confidence that you give them.
It is quite disturbing when you look at this list to understand how generically similar a lot of agents and salespeople are when they do their sales pitch. Top agents will go a lot further than the generic sales pitch approach. Top agents will drill down into the matters that really count regards the property and its position in the local area. They will also come up with very specific strategies to market, inspect, and negotiate the single listing. Clients really do know when they are dealing with top agents.
So here are some tips to help you service your exclusive listing clients.
Tell them how you will be marketing the property and show them some solid examples of that process. Give them some choices in the marketing approach whilst still making your recommendations.
Take the client to the property and walk them through the inspection process as you see it, explaining how you will build on the features of the property and the improvements.
In each week of the exclusive listing marketing campaign, you will need to be connecting with the client with a updates regards inspections and enquiry. The client should be spoken to at least every two days throughout the entire listing agency period. If nothing has occurred from any part of the planned marketing activity, it is still important that the client knows that. Lack of information will turn them against you and make any future negotiations difficult.
When an inspection has occurred with the property, direct feedback should be given to the client. This third party feedback will be valuable in helping you condition the client to the prevailing market conditions.
Clients are always important to a commercial real estate agent. In times of a slower property market, is imperative that we provide high levels of interaction and service at all times. In this way you will achieve better results with all of your listings, and the chance for referral business at a later time.
When it comes to leasing commercial property you really do need to know what is going on in the local property market. In only this way can you match your marketing activities to the levels of enquiry that currently exist.
Three tips to help you with the leasing process centre on market evidence and market activity. Here they are:
1) Assess the levels of net and gross rent for comparable properties nearby before you start your leasing process. Your property will need to have asking rentals that are similar to the other properties because the tenants that you attract through marketing will already know what the rental levels are in the market today. The differences between net and gross rent will also be of interest to tenants and centre on the levels of outgoings that apply to the asset. Most tenants will be concerned regards any extra rental payments that need to be made beyond the base rent. This is where the levels of outgoings can frustrate the leasing process. Make sure that your outgoings are in parity to properties of a similar type nearby. If they are an extra payment to be made by the tenants, ensure that the outgoings are realistically structured and charged.
2) Choose a lease format that covers all the activities and uses of the property. The use of generic leases today is far too common. In most cases generic leases are only relevant on the most basic of property (such as an industrial shed). It is interesting to note that many landlords take the generic lease process because it is way cheaper than a specific lease; when things go wrong with the property or tenant they then have troubles in solving issues given that the lease is just too basic. The message here is for the lease to be drawn up by a good commercial property experienced solicitor.
3) Get a good rental guarantee to boost your landlord’s position and protection in the case of lease default. Tenant default is a common problem today, and the traditional ‘Directors Guarantee’ is not much value in the scheme of things. The landlord must be able to get easily their hands on ‘real money’ if the tenant defaults; that will normally be only through a bank guarantee or cash bond. As to the amount of what should be asked for and held as part of this process, the answer is usually ‘the most you can get’. That should be between 3 and 6 months rental (all types of rent including outgoings and any taxes paid) depending on just how difficult the property could be in the reletting process.
There is no doubt that the leasing process and activity is high in many locations today. When sales opportunity slows, the leasing activity tends to lift. Good agents can handle leasing as well as sales and they adjust their activities depending on what the property market requires.
When it comes to property performance today, landlords want stability of their tenant mix and tenant profile. Anchor tenants and major occupiers of space in the building need to be nurtured.
Even in the best of properties you will come across a vacancy issue. On that basis the property or leasing manager should maintain a strategy to optimise and grow leasing leads. When the vacancy then happens, the available space can then be marketed to the tenants that are already qualified and on your list.
The database for the leasing agent then becomes critical to the leasing service provided to the landlords and quality properties in the local area.
The local leasing agent should know their area, the lease incentives, the factors of supply and demand, and the trends of the leasing market. They should know what works and what does not when it comes to a new lease of premises in today’s market. Without this information the landlords will not fully understand the benefit of the lease offer to be put to them; that then just makes the final lease negotiation all that much harder.
To generate leasing leads in this market here are a few tips for commercial property agents.
Keep in contact with business leaders in all major businesses.
Monitor the demographic changes to the community at large.
Review the tenancy schedules in all large leased properties for expiry opportunities.
Tap into the lease deals that are being done by all agents so you know the real rents and not just the advertised rents.
Talk to landlords on a regular basis in case they can use a tenant retention plan or tenant mix strategy.
When you work in commercial or retail property, you will find that leases feature as a critical part of property performance. On that basis you really do need to know how to read and interpret leases; they will impact property sales and investment performance.
Having been a specialised real estate agent for many years and worked on many large properties, I have used a checklist model to help me read leases and interpret them prior to selling or analysing the tenant mix in the property. Here is the start of my checklist and some of my main items I look for. You may use it or add to it as required given your local property market and the property type.
Get the up to date tenancy schedule to cross reference against the leases
Review the original leases plus any supplementary amendments or alteration documentation
Chase down any licences or deed relating to occupancy and tie those to the leases and relative tenants
Have a copy of all the latest tenant rent and outgoings invoices so you can see what they are paying now
Understand that all rent reviews and options in the property have been correctly processed and that you have been given the latest correct documentation regards that
Know who the tenants are and the contact detail. Does that information cross reference to the leases?
Tenant names and business structures
Tenant identifiers or suites
Area occupied versus lease plan description
Plans of tenancies and access details
Plans of the property and relevance to tenancies
Common area proximity to tenants and impact
Options coming up and method of implementation
Rent reviews coming up and the type of review
Lease expiries coming up and the threat to vacancy levels
Current vacant tenancies and details of asking rents.
Outgoings payments under the leases
Recoverable outgoings under each lease
Market rent structures versus fixed and percentage or other types of rents
Insurance risk matters for the tenant and the landlord
Permitted use in the leases and current compliance
Make good obligations for the tenant
Handover strategy at end of lease
Landlord obligations written into the lease (and current compliance)
Tenant obligations written into the lease (and current compliance)
Inspect the property as part of understanding the leases
So this list can go on but it will give you a good start with some of the key things to look for with tenants and landlords leases. Remember that every property is unique and on that basis should be individually reviewed. Expect the unusual and look for it.
When selling commercial or retail property to the investment market as a real estate agent, it is very much the case that the existing tenant mix and lease profile of the property will impact the sale timing, strategy, and the eventual price to be obtained. So if you are a salesperson specialising in commercial or retail property, you should get very familiar with lease analysis and interpretation. Here are some of the things to be reviewed in a lease prior to any sale strategy implementation.
Types of tenants and relative stability. Are they the types of tenants that a purchaser would see as adding value to the property
Anchor tenants in the property and how much more time they have on their lease
Tenant mix around the specialty tenants.
Vacancy history in the property and any current vacancies
Rent reviews coming up and the types of reviews. They may improve the landlords cash flow and hence the value of the property.
Options coming up and the timing relative to sale. It sometimes pays to get these things done before the sale marketing commences.
Any lease incentives that are still current and that may drag on the landlord’s cash flow. It is best to get these out of the way before sale.
Recovery of outgoings in the lease and how they improve the landlords cash flow will be a factor in the sale.
Make good issues and costs could have an impact on the landlord or the tenant. Check the lease to see just who is responsible for remediating the lease at expiry.
Any supplementary rents and income should be identified. This can be licences for storage, car parks, signage, and similar income that improves the bottom line for the landlord
So if you want to sell commercial or retail property as a career, get used to reviewing and interpreting leases. It is a skill that will improve your chances of winning the landlords confidence and the listing. You can get more information about lease analysis at http://www.commercial-realestate-training.com/
As a real estate agent in a market that is ever changing I have found that leasing is good commission cash flow when sales slow or become more difficult. Versatility to do both in this property market is quite important.
There are plenty of businesses out there that want new premises or to take advantage of lower rents and incentives. So how do you tap into these businesses?
Try this list:
Look for lease expirees 12 months out so you can help tenants with relocation opportunities
Talk to all the businesses in the local area and get to know all the business leaders. Some will own their premises and others will rent
Look for those businesses that are running out of space
Check out the older buildings where the tenants might be wanting to upgrade to better building services and amenities
Talk to the local planning authority so you can identify any changes to supply and demand for vacant space in the local area
Keep up to speed on the number of new developments coming up and what lease incentives are being offered.
This is a simple list and yet an effective way of building real lease opportunity from tenants and businesses in your area. The more that you know about businesses and relocation pressures in key properties the higher value you are to landlords and property investors in the local area. Opportunity awaits in commercial property leasing.
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