It is important that every commercial property has a lease strategy to support ongoing cash flow and reduce vacancies. These strategies should be integrated into the business plan for the property and for the landlord.
It is of note that a single lease for a new tenant should not be looked at in isolation. It should be looked at broadly with due regard for the surrounding tenancy mix, the income required for the property, and the impact that the long term occupancy may have from the initial term and into any option period agreed.
Here are some ideas to help you consider the leasing of a commercial property:
Assess the local area for competing properties. Some of those properties may be taking or attracting your tenants now. Look at those competing properties to see what is happening when it comes to vacancy profile, tenant mix, expansion and contraction, and the lease marketing strategies. Your property will need to be equal with, if not better than, those competing properties.
Assess the market rental through the local area so that you can create attractive lease packages for incoming tenants. When it comes to leasing, the start rent is not as important as the cash flow over the lease term. The starting rent should be regarded as something of attraction to create lease occupancy.
The rent review structure over the lease term will give strength to the cash flow for the landlord. The best way to assess ongoing cash flow is through the calculation of the lease and its net present value to the landlord for the duration of the lease. You are therefore assessing the income over time, not just focusing on the rent today.
Some landlords prefer not to give options for renewal. This is certainly the case when it comes to a quality or larger property where the landlord wants to retain flexibility in the tenancy mix. Many landlords of the larger shopping centers will avoid giving options to tenants for ongoing occupancy. The reason for doing this is that they like to move tenants in and around the property based on tenant mix and clustering. When they move the tenant, they can improve the overall cluster and general area including the other tenants. This will then have further benefits for the overall income return for the landlord.
When you negotiate the necessary rent reviews in a lease document or new occupancy, mix the rent reviews appropriately so that the landlord gets a sensible and realistic increase in net rent income. The rent review methods available will be variable such as market rent, fixed dollar increase, fixed percentage increase, or something that is indexed to the consumer price index. You can make the right choices based on the property type, the landlord, and the legislation or property laws that apply to lease occupancy with that tenant situation and property type.
If you manage or lease a property with a number of tenants in occupancy, look at the overall lease profile and expiry dates over the long term. Any lease that is to be expiring inside the next 18 months should be focused on now for lease renewal, lease expiry, tenancy change, expansion, or contraction. Start talking to your tenants early so that any appropriate changes to the occupancy can occur with measured and structured negotiations. Whilst the lease document may provide for certain other time frames on lease renegotiation, there is nothing to say that you cannot start this process early.
Keep in close contact with the current tenants in your property. They will have pressures of occupancy and on that basis it is better for you to work with those pressures than let the tenant move to another nearby competing property. Keep talking to your tenants on a monthly basis to understand exactly what they are thinking and doing as a business. Help them stay with the property for the long term if it suits the landlord’s situation.
The leasing of a commercial or retail property is relatively straightforward when you follow the rules. You can create a checklist with the above matters and other things relative to the property type. Control is everything when it comes to making a lease strategy and structure successful for the landlord.
In retail leasing, you really do need to know your territory and tenants. The retail business segment is under some pressure at the moment in many respects. The internet has changed the way shoppers buy goods, and the spending patterns of people have changed due to the global economy.
When times are tougher in retail shopping and trading, it is the ‘convenience’ type tenants that still do quite well. Convenience tenants are usually food and consumable related (baker, fruit and veg, butcher, chicken, and fast food).
To help your shopping centre trade and thrive in tougher retail times, you need to closely look at your tenant mix and the clustering of tenants. Everything has to be done to encourage more trade for tenants and between tenants. Tenants should be selected on the basis of relevance to your local shopper and their needs.
As a retail leasing expert you can get close to the retailers and the business community. This will help you find the right tenants and the successful traders.
Here are some ideas to help you build a matrix of retail leads and opportunities in retail shop leasing.
Franchise groups are a proven business model. Some of them will suit your property and shopping centre. Talk to the franchise groups to understand what it is that they need in a property to consider occupation and leasing. Find out what their business model is and the standard lease terms and conditions that they require. Some franchise groups may also not be located in your area and may be looking to enter the region. Make some telephone calls and ask the questions of the right people.
Business owners in the local area know so much about the local businesses and the community. Approach the business owners and the wholesalers or manufacturers of retail goods and services. Through that contact they may give you some leads for talking to successful retailers.
Existing properties in your local region will contain successful tenants and businesses. Check out those properties and talk directly to the tenants. Some of those tenants will be quite successful even in a slower retail cycle.
Shopping Centres and Shopping Centre Managers will offer lots of retail leasing leads and needs. Shopping Centre Managers will have leasing needs in their properties from time to time. Their tenant mix will change and the property may expand or undergo redevelopment. Either way, retail leasing activities will follow in some form or another. Most shopping centres have a business plan and a tenant retention plan, in addition to standard lease strategies and lease marketing efforts. Get to know your shopping centre managers for the leasing needs that will arise.
Landlord owners of retail properties and retail shopping centres need experts in leasing to help them. This is where specialisation in retail leasing is so important. You can fill that requirement with some specialised industry knowledge and leads.
Tenant retention today has become an important strategy in property performance, particularly with retail shopping centres and retail investment properties. Every commercial and retail leasing agent should provide a comprehensive and detailed tenant retention strategy to those property owners that need the service, or own the larger properties.
A good retention plan will give you as the retail leasing specialist opportunities for future leasing, renewal negotiations, tenancy relocations, and property changes. All of that means better commissions.
A leasing expert in this market is of high value to any landlord with a high quality retail property. This leasing churn produces fee opportunity and market intelligence. Most property owners and landlords will not have the tools or the market intelligence to design their own tenant retention strategy in this regard.
So a good tenant plan will have particular factors to help property performance, and strengthen the tenant profile for the landlord. Ultimately this will encourage rental income and lower the vacancy factors.
Here are some factors to help you establish the retention plan in properties and listings of suitable size and complexity.
Get to know the existing tenants within the property. This will normally involve meeting with those tenants to talk about customer activity, customer trade, and property requirements. In most circumstances, the tenants within a retail property can give you significant and valuable feedback to help your plan creation and consolidation.
Get professional surveys undertaken of shoppers using the property on various days of the week. In medium to larger shopping centres, it is quite common for the survey to occur on a quarterly basis. The survey would normally take two weeks to implement so that you cover the necessary variables in daily shopping. The results of the survey will tell you what customers are looking for and what they think about the property today.
Visit the local council or planning approvals office to understand the activity of other property developments coming into the market soon. Obviously you should look for new property developments that could destabilise the balance of supply and demand when it comes to tenancy leasing.
Review other properties in the local area to understand their factors of vacancy, market rental, and customer base. You can also selectively talk to some of their tenants to get feedback regards shopping trends and property performance. Obviously it should be said that this approach should be suitably confidential and sensitively handled. Many other property managers and property owners may feel threatened if you make this process too public or obvious. Simple questions asked in a creative way as you purchase a newspaper or an ice cream can give you some good tenant feedback to work with.
Given your existing retail property, determine the tenants that are more attractive and less attractive to the future of the asset. The attractive tenants will feature in the retention plan differently and more intensely. Some of the less attractive tenants will disappear from the plan when you can find better ones.
If you have an anchor tenant or perhaps a few anchor tenants in your retail property, it pays to talk with them regards property trends and sales. They will give you valuable feedback from their perspective as a major retailer. Most leases with anchor tenants go for many years. Make sure that the tenant is locked in for the longer term and that they are well integrated into the overall tenancy mix activity.
So these are some of the foundational factors that will help you move towards a good tenant retention plan. Over time you can consolidate our real strategy across the entire tenancy mix.
When it comes to your career as a retail leasing expert, market knowledge will help you greatly when it comes to market share and market dominance. The retail property market is quite specific and special. There are many factors to consider and be aware of the as part of the specialized leasing task.
Retail property today is experiencing some challenges. The shifts in retail spending and due to the pressures of the Internet are quite apparent. There are also other pressures on retail that apply due to the global economic downturn.
That being said, retail spending doesn’t disappear, it just changes. That is why a retail property experts and particularly leasing specialists are perhaps some of the most skillful in the property market. They know what works and what doesn’t.
Here are some factors that require constant attention as part of servicing the retail leasing industry and shopping centers today.
It is wise to have a solid awareness of the significant and larger retail properties across your region. They will have pressures of change, refurbishment, expansion, and contraction. Those pressures will have influence on nearby competing properties and the movement of successful tenancies between each.
Franchise groups are now on a significant part of retail property performance. In many respects, they require occupancy opportunities in certain locations and property types. It pays to keep in close contact with the franchise groups for this very reason. They will have critical criteria that must be satisfied when it comes to a new tenancy and property occupation. They will usually share this information with the other retail leasing experts that could assist them with finding another tenancy. It is all so common for those retail groups to provide their own special lease documentation. Whilst this is convenient, it also has some concerns for some landlords. If you are involved with a lease negotiation of this type, the landlord for the property (your client) should have a good property solicitor acting on their behalf in the scrutiny of the franchise lease document. In most cases, the franchise lease document will coincide with the terms and conditions of the franchise business agreement struck between the franchisee and the franchisor. Landlord flexibility is required to make this balance work.
Rental strategies in retail property will vary from property to property and location to location. The rental for a tenancy is simply not just the commencing rent. It is a combination of many things including the commencing rents, the rent review profile, any lease incentive, and outgoings recovery. The right combination of these things will help improve the occupancy for the tenant and the landlord.
In any retail property, the tenancy mix will be important to the stability of occupancy and relationships between tenants. In larger shopping centers, this problem manifests itself in many ways. It pays to consider the clustering of tenants in zones within the property. In this way you can build on the sales relationships between like tenants in the cluster.
Retail leasing experts will usually spend significant time in the marketplace reviewing the performance of nearby properties, and meeting with retail tenants. These factors will produce market intelligence and feedback that allows the retail leasing expert to bring experience and relevance to the clients that they act for.
A retail property is quite special when it comes to tenant mix. In many ways the tenant mix will shape the future of the property. The success of the market rent for the property will come from the relevance and stability of the tenant profiles and the anchor tenants in the property. Are you an expert in all of these things?
In saying all of this, if you are a retail property manager, shopping centre manager, or perhaps a retail leasing specialist, you really should spend time on understanding the factors that strengthen a tenant mix profile in a retail property. In this way you bring better value and knowledge to your clients and property owners.
Retail property leasing and performance is really the pinnacle of skill and speciality in investment property today. Most of us that know the retail shopping centre industry well, find retail property very interesting and challenging.
A successful retail property is a balance of many things; as a retail specialist, you need to know what those things are and how to work with them. Good clients pay well for top retail property agents to help them.
Here are some of the important factors that come into a tenant mix plan and tenant retention plan for a retail property today.
From the outset you must know what your customers want and how the property interacts with the local community. For this reason it pays to survey your customer base and find out what they think of the property and its tenant offering.
Talk to the tenants in the retail property. They will have factors that they can share regards shopper requirements and buying patterns. Also note that some tenants will have different ‘stories’ to tell in this regard given their retail offering and position in the property layout.
Work closely with your anchor tenants so you understand just what they are seeing in shopper buying patterns and movement. Integrate the anchor tenant to the specialty tenants in the property to optimise mutual trading advantages.
Do you have common areas in the property where people and shoppers are encouraged to congregate and spend time? Do you have a food court in your common area layout that will help the shopper retention factors in the property?
Look at the lease terms and conditions for all the tenants. As part of the tenant retention plan it pays to negotiate any lease renewals early so you know just how much vacant space is coming up for renewal; then you can plan how you want to use it.
Expansion and contraction factors in a retail property are always happening. Some tenants will need more or less space; that is why you should create and how you should manage your tenant retention plan. Look after the good tenants in the property and manage the poor tenants out of the property at the end of their lease term. Over time the market rental can be underpinned by better tenants working in cooperation with each other.
Should you give tenants any options for a further term in a lease negotiation? Not necessarily is the right answer. The final decision on lease options will be based on the overall tenant mix, the property renovation requirements, and the landlord’s investment plans. Most large shopping centre owners do not like giving options for a further lease term given that it takes away a lot of control that they would otherwise have in a shop location and its position in the tenant mix.
Some of these factors can give you real control on the future of a retail property. Formulate your tenant plan and put it into motion. Over time this will help your retail property perform more effectively as the retail trading environment and economy shifts and changes.
In commercial and retail real estate today, there is a significant shift in leasing to franchise tenants in the tenant mix. The reason being, that franchise groups bring a brand name and a business model to any vacant area in a property.
Not all franchise tenants are the right choice for a commercial or retail property. Due regard should be given to the existing mix of tenants and just how the franchise tenant will integrate into the overall property. Some of these franchise tenants can create extra demand on the property such as:
Access to the premises
Rubbish and waste disposal
Hours of operation
Marketing and display of signage, etc.
So a lease for a franchise tenant should be carefully considered and negotiated. That being said, many franchise tenants will have their own lease to submit to the landlord of a property. Whilst that is convenient, the landlord should carefully consider the differences between the franchise tenant lease and the standard lease for the property. In most cases the lease provided by a franchise tenant focuses on just one thing; the running of the franchise business.
Here are some tips for negotiating leases with franchise tenants today:
Meet the tenant on site and walk through the factors of occupancy that are critical to the operation of their franchise business.
Understand that the franchise business will have a business agreement that will need to integrate with the duration of the lease of the property. Some landlord flexibility may be required to make that match.
Ask questions about special occupancy needs such as grease traps, air conditioning, cleaning, refuse, and customer involvement. If there is a cost to be considered, ask about who pays.
The make good provisions at the end of the lease will always be important. The landlord requires clean and reinstated premises.
Understand just how the tenant will be integrating their marketing into the property and what signage they will require for the process. They will need to position signage where consistent branding messages are conveyed to the customers and passing traffic.
If the tenant operates outside of standard property hours of operation, it will be necessary to consider the costs that occur as part of that process. The costs should be directed to the tenant to pay as part of the lease structure.
As to who will be the lessee in the property will be a valid and important question. Normally the franchise group does not want to lease a tenancy space unless it is of prime importance to their business model and operation. That is why they only directly lease the prime locations.
A franchise type tenant is a good tenant; they just need extra attention to ensure that the lease in the property works for both parties.
Asking questions in the lease negotiation will always help with the future occupancy for both parties. Look for any issues of challenge and deal with them upfront.
When you work in commercial real estate as a broker or agent, the fact of the matter is that you are serving a number of clients and helping them through the challenges of property performance and liquidity. Here are some tips from our Newsletter for Commercial Real Estate Agents.
If you are managing a lot of properties at the same time, it becomes a real challenge to administer the issues related to firstly performance and secondly the liquidity in all the different and diverse properties. Every property owner will have different rules and regulations relating to their lease management, cash flow, and approvals process.
To define both of these important matters:
Property performance is in how you optimise the result the property. Performance can be a number of different things including income, reduced expenditure, tenant mix, tenant retention, and market rental.
The liquidity of the property is the ability to sell it at any particular point in time and the properties attractiveness to the market in general. Throughout the given year, liquidity will vary given the pressures of the economy, and the rates of enquiry that are coming in from buyers.
Today we have a property market that is under some pressure. The global economy is creating some difficulty for many local businesses. That has an immediate flow through to the tenancies in our managed properties. This is where the leasing manager or property manager can provide a high value service to their clients through a tenant retention plan.
The tenant retention plan is designed to identify the critical tenants within each and every property, and then manage them to optimise rental income and minimize vacancy risk. Experienced property managers do this very well and will usually have a tenant retention plan as part of their toolbox of services.
To implement a simple tenant retention plan the following rules can be adopted:
Take the individual property and look at all the leases for each and every particular tenancy. Identify the critical dates that will have impact through the term of the leases and look for those dates that will be related to rent review, option, or lease expiry.
Given these critical dates, look at the next period of 24 months and track any dates that are inside the ongoing 24 month timeframe. The dates related to the exercising of option, or the negotiation of lease expiry will require action as early as possible. There is nothing wrong with negotiating early in each case.
Some tenants within the property will be regarded as more important and critical to the tenant mix. Any negotiations with those tenants should be optimised through attractive terms and conditions that the tenant will find hard to refuse. Any new lease can pick up the growth of the rent for the landlord subject to a strategy and the required holding strategy.
If your property has any anchor tenants, those tenants should be closely monitored for business stability and interaction within the property. Successful anchor tenants create an immediate flow through to all other tenants and give confidence to the property function and identity. Support your anchor tenants at each and every opportunity.
Attention to the tenancy mix and the retention plan will help you through difficult times with the performance of a property. When well maintained and managed, a property will always be saleable and attractive as an investment if a sale has to occur. Property investors and buyers like to see a stable tenancy mix supported by professional lease and property management.