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How to Discover Clear Market Trends in Commercial Property Leasing

As you look around your town or city, the property market is always changing.  The landlords and tenants are under flux and change.  You can work with that change.

(N.B. these ideas are also sent out to regularly to our friends in Commercial Real Estate Online Snapshot to help amplify brokerage results…. Get your access here)

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.

Get the audio here:

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Control the Leasing Market and Be Your Own Boss

commercial real estate training audio

In commercial real estate brokerage leasing, there are many things that you can do to improve property performance for the clients that you serve.  Ultimately that means tenant placement and rental improvement.

The landlords in your town or city are doing their best to avoid vacancies and or poor tenant mix results.  So that is where you can help.  Create a good database of tenants and market that service to the landlords that own high quality properties locally.  You can also connect with the larger tenants in the location so you can provide a tenant advocacy service.

Here are some ideas on MP3 audio to help with your leasing services and professional skills:

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Commercial Real Estate Brokers – How to Solve Commercial Real Estate Vacancy Problems

office cubicles
Vacant office space requires real strategy

 

Most commercial investment properties will have vacancy pressures to deal with from time to time. The larger the property, the greater the potential for vacancy issues to frustrate rental cash flow. If you are involved in the management or lease of any large investment properties, it is essential that you understand the intentions of sitting tenants when it comes to future occupancy.  The concept is called tenant retention.

Tenant Retention Plans

In an ideal world, vacancies should be resolved quickly and effectively for any landlords that you act for. The only way to achieve that level of control will be through a mix and match of the following strategies:

  1. Understanding the intentions of sitting tenants when it comes to lease expiry
  2. Monitoring the upcoming lease expiry dates approximately 18 months in advance
  3. Do a lease audit for all existing tenants
  4. Negotiating any lease expiry’s early so you can deal with the vacancy in a timely way
  5. Keeping in close contact with all of your sitting tenants within the tenancy mix so you know what they are thinking when it comes to occupancy
  6. Understanding the local business sentiment applies to rents, relocation, and property requirements
  7. Keeping in close contact with all local businesses to attract new tenants to your property when required
  8. Understanding the requirements of the landlord when it comes to market rental, cash flow, outgoings recovery’s, and lease documentation

 

Any leasing agent providing a specialised leasing service locally should satisfy and engage in all of these mentioned issues. All of these issues can be merged into a tenancy mix plan and a tenant retention plan for a major investment property. Large office buildings, and large retail shopping centres would be suitable for those control processes and plans.

To provide a top-quality leasing service, any vacancies currently or into the future should be controlled and filled. A top leasing agent will stay in contact with the landlord and all the tenants to ensure that vacancy downtime is minimised.

Any vacancy in an investment property can be a significant drain on cash flow over time. Not only is there a loss of rent, but the outgoings for the vacancy will become a landlord cost and therefore not recovered. Any property with a high vacancy factor will find it difficult to negotiate rent reviews and options with sitting tenants. Market rentals will also be hard to establish and maintain because of the high vacancy factor.

If you are involved in the management and leasing of any complex property with multiple tenants, it is essential that you track and control vacancies as they apply to the tenancy mix. Work well in advance to negotiate existing lease options, minimise vacancies, and attract new tenants that could be thinking about coming to the property.  Why is your property more attractive than others in the area to tenants?  When you know the answer, you have the basis of your lease marketing campaign.

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Leases Really Matter in Selling Commercial Property

city buildings on river edge

As the opportunity for listing commercial investment property arises, we can sometimes be too eager to take the listing without getting all the important facts that affect the price.

Check the leases on a commercial investment property before you talk about price on the property as the leases may assist or hinder the sale.  They can also dictate a sale strategy.  This says that a good commercial real estate broker or agent must know the structures of a lease and what makes a good lease.

Depending on the age of a property, the next phase of its lifecycle may be refurbishment, demolition or remix of tenancies.  Every phase is different.  The demographics of the region in which the property is located will also have something to do with the future of the property.

A property that has a majority of leases that are soon to expire may be attractive to a purchaser that wants to owner occupy the property or a developer that wants to change the site and create a new building.  On the other hand, the same property in such circumstances will not be attractive to a new investor unless they want to undertake refurbishment works and re-position the property with new tenants.  Decisions are based around strategy needs and timing; an agent or broker for a commercial property you need to be the ultimate strategist.

commercial office leasing system
How to find more tenants for commercial and retail buildings.

 

Know These Leasing and Tenant Mix Facts

When looking at the potential sale of the property, the lease aspects requiring future awareness and understanding in the sale include:

  • Rent review profiles – are they strong and well-timed or do they just gear to the consumer price index?  Also look for the market rent reviews and see if they are well timed or if they expose the property owner to volatile cash flow changes.
  • Lease expiry dates – these are always a concern if the property requires stable cash flow, so look for multiple lease expiries that are close to each other, and also that may consist of a majority of the lettable space in the building.  Understand the cash flow in the property before the sale process starts.  What tenants should stay in the property at lease expiry?  Will you need to fix those occupancy facts before sale marketing?
  • Option periods – from a landlord perspective, lease options are not always a good thing to have as they can frustrate the future of the property; it really depends on what the landlord thinks that they want to do with the property.  It is of note that many large shopping centres and malls do not allow lease options for that very reason.
  • Details of any current incentives with existing tenants – some lease incentives carry on impacting the property for some months or even years.  When the property is to be sold, these incentives must be offset or discharged at settlement as the future purchaser may not want to take over the burden of such.
  • Outgoings recoveries – leases and most particularly net leases will allow the landlord to get back some of the building operating costs.  It pays to check the leases to see exactly what those recoverable items may be as it can impact the property sale or buyer interest
  • History of income and expenditure performance – I always go back at least 3 years to check these numbers and to see what have been the major changes in the outgoings.  What you are looking for is overly large imbalances in outgoings from year to year that indicate that something major has impacted the property or a strategy has changed.  Get reasons for any changes of this type so that any astute buyer can be given logical explanations.
  • The current budget of income and expenditure performance – every commercial investment building of any type should function to a budget each year and the details should be available for your review.  Parts of the expenditure that impact greatly on the property are the rates and taxes as they take up on average a full 33% of most building expenditure.  You need to know that these rates and taxes are on average with other properties in the region.

Property performance elements such as these will affect the potential income from the property well into the future and will also dictate the best time to sell the property.  In an ideal world, you would time the sale so that the income is optimised and the outgoings are controlled to acceptable levels.  This cannot always be done especially in markets like that which we have today, but you should know where you stand on the property performance before you proceed into a sales program.  Strengths and weaknesses of cash flow should be identified and logical reasons provided before any sale campaign starts.