Leasing commercial property today can be a challenge for all sorts of reasons. The landlords that we act for and the tenants that we negotiate with all have requirements to be balanced into a lease structure. Negotiating a lease can be a real challenge.
When you look at the financial or calendar year, there will be ‘seasons’ of property activity. Sales and leasing activity for a property type will vary during those ‘seasons’ of business and tenant activity. As the local real estate agent you must do the best you can with leasing given the rental and leasing requirements. Understand what the property market is doing and then ‘prospect’ into it. You will soon find the landlords and tenants that require help.
Reflecting on today’s property market, here are factors that require attention of the leasing agent:
Comparable properties in the local area should be understood and watched. From time to time you will see those comparable properties take your tenants or seek to attract your tenants away from their leases. It’s all about you being competitive as a property when it comes to lease terms and conditions. Use a tenant retention plan to keep your tenants happy and in occupancy. Talk to your tenants regularly.
Market conditions will change during the year. Pay particular attention to the factors of market rent and vacancy rates. See the trends in both and look for the upcoming new property developments that could impact the supply and demand factors of occupancy.
Rents and incentives will change during the year. Gross and net rents will rise and fall based on the supply and demand for space. Importantly your vacant areas should be competitive when it comes to marketing vacant space to new tenants.
Local property types will show trends when it comes to rents and vacancies. Watch what the market is doing. Stay ahead of the trends and advise your clients and landlords how to handle their tenants and rents.
Landlord requirements will vary based on the holding requirements and cash flow of the property investment. The leases that you negotiate will also be based on the holding requirements of the landlord. Understand these factors.
Vacancy factors will have an impact on the tenant mix. Work with your tenants to keep the vacancies under control. Talk to new tenants to encourage lease negotiations of currently available space.
Outgoings recoveries will help the landlord with net rents. Look at all the leases to see what recoveries can and should occur. Reconcile and charge those outgoings correctly in accordance with the leases.
Lease documents will vary across a property and on a landlord by landlord basis. Read your leases and enforce them correctly.
To be successful in leasing commercial property today, you must understand the market, the landlord, the local rents, and the property performance. It is a fine balance that is a professional requirement for property leasing agents.
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 commercial real estate advertising and marketing, you need to carefully consider the channels of media that you use for your agency and for your listings.
On that basis you should also be tracking the advertising responses that you achieve in all the different channels of media. Some will be more relevant than others for the listings that you take on and your region.
This then says that your promotional activity will have a specific focus of encouraging interaction with the buyers and the tenants that are in the market. You will also be encouraging interaction with the sellers and the landlords that are looking for property assistance. Tracking and measuring becomes a very specific process to help you see what is working from a promotional viewpoint. How and why are people contacting you? That is a really important question and key fact to monitor.
So your advertising and marketing efforts will encourage results and feedback from the right people looking for property assistance. They will come to you through various systems and processes that should and will all be tracked.
Here is a list of the things that should be utilized in most agencies and tracked for promotional feedback:
Out of every campaign for a quality property, you will get people looking for more information to be sent out. Each exclusive listing should be tracked for this. A follow-up telephone call should occur in each case after the information packet or email has been sent and received.
Understand the number of inspections that have occurred within property types and with particular listings. You will soon see the properties and the regions that are more popular than others.
Keep a tally of inbound telephone calls that apply to the agency and also to each listing. The same can be said for particular salespeople as some will be more successful than others when it comes to creating enquiry.
With some larger and more exclusive properties you will be sending out information memorandums to qualified prospects. These requests should be tracked and then followed through.
Each day you will receive requests via e-mail for property information. Keep a tally of email requests for all of your campaigns and exclusive listings.
Your newsletter should be sent on a regular basis to qualified prospects. Track the growth of your newsletter subscription list on a weekly and monthly basis. Keep in personal contact with the people on your list.
Put an offer on your website for a free report relating to the local property market. That free report will or should encourage subscribers to join your newsletter. Track the activity and the requests for this free report. Ensure that the report is of relevance and attraction to the local area and property market.
Track the number of website hits that you are getting each week. You will find that certain days of the week will be better for website marketing and property listing. Understand the differences between new visitors and repeat visitors to your website. Look at the bounce rate that applies to people coming in and moving around the pages of the site.
Track the numbers of people involved in your social media activity. You should have a social media platform for the agency and also for the individual salespeople in your team. It is questionable whether you will actually make a sale or lease as a direct result of social media usage. Social media is more effective as a community involvement tool. It helps people remember you for the future when they are ready to lease, buy or sell commercial and retail property.
You may add to this list based on your property type and your location. You can however see the importance of tracking numbers so that you can see and determine the things that are working for you. When something works well as promotional tool, it should be repeated or utilized on a regular basis.
When it comes to moving a tenant into a commercial or retail property, you can develop a checklist to keep you on task and cover the critical issues relative to the property and the parties involved.
In leasing and managing a property, there are many things that happen every day to distract you. The checklist process will cover issues well and help prevent errors. Moving a single tenant into a property is not all that hard, although the issues become much more complex with multiple tenant movements, just like that which you get when you are looking after a large project or shopping centre.
So here are some tips that can help you structure your tenant movement processes and controls.
As a general rule nothing happens until the lease is signed by all parties, rent is paid, deposit is paid, guarantees are in and validated, and any other lease requirement completed. Hold on to the keys until these things have been done.
Meet the tenant on site to inspect the premises together. As part of that process take plenty of photographs around and in the premises to record the state of the tenancy at time of handover.
Give the tenant a set of ‘fit out guidelines’ that control the building activity that is likely to happen in the premises. Those guidelines should also contain the plan approval requirements and the specification of materials and finishes to be used in the premises.
Give the tenant a set of ‘building rules’ that tell them exactly how things happen in the property. This strategy is wise when you have a building with a number of tenants. They all should occupy to the same set of rules. That will include access, common areas, security, property use, and risk management.
Note the condition of the premises in a ‘condition report’ that the tenant should sign at the end of the inspection. Give them a copy and you keep a copy on file. The report will be important at the end of lease term when the make good is under consideration.
Tenant fit out works should not commence until all the required plans and approvals have been obtained. This then says that you should get the plans and drawings from the tenant to submit to the landlord. If the landlord approves those plans, they can then be submitted by the tenant to the local building approvals authority. Fit out work should not commence until the approvals are in place.
Put the tenant details into the directory signboard system for the property.
Whilst the tenant is completing their fit out they should not disrupt other tenants nearby.
When the fit out has been completed, inspect the premises to ensure that the works undertaken comply with the approved plans and drawings.
Get a full set of tenant plans after the works have been completed.
You can add to this list based on the property, the landlord, and the tenant. Create your checklists to help you with all of this tenant movement.
In today’s commercial real estate market, tenants know exactly what they want when it comes to a property and the location. They also know that they have the favored position when it comes to lease negotiation. There are plenty of vacant tenancies to choose from. The rents and or deals that are offered today give tenants great flexibility when it comes to lease negotiation.
The landlord today needs to be guided through the facts of the market so that they suitably match the needs of tenants as part of the typical property negotiation. Unrealistic landlords waste everyone’s time. It is the job of the agent to help the landlord through the facts of the property market as they exist today. You will need evidence to support your rental recommendations and negotiations.
So exactly what do tenants require when it comes to leasing premises today? The situation will vary from property to property, but here are some common facts for you to consider.
They want a quality property that is well maintained. This means that the landlord should optimise the presentation of the property at all times. The maintenance processes will help stabilise existing tenant occupancy and attract new tenants to vacancies.
Regardless of how much the landlord thinks the tenancy is worth in rental, the tenant will not pay above the market rental. Given the large number of vacancies generally available, most lease negotiations will need to be keenly structured with lease incentives, landlord funded fit out works, and attractive lease occupancy conditions.
Quality services and amenities as part of occupancy should be provided. The convenience of being a tenant in the building should be an obvious factor to help the tenant negotiate through any new lease.
Tenants today really do not need to negotiate on vacant premises to any great degree. There are plenty of tenancies to choose from and the first offer you get from the tenant may be the only offer that a tenant provides. They will soon move on to another property. Landlords with an inflated view of rental or lease terms and conditions, may very well lose an interested tenant.
As a general rule, early occupancy for the purposes of fitout establishment should not be provided until the lease is signed and all other lease obligations are paid by the tenant. Many tenants have changed their mind on a property between commencing fit out design and construction, and signing the lease for occupancy. Be aware of the problem and do not fall into the trap.
Today’s leasing market is quite active from a tenancy perspective. The tenants can call the deal or negotiate keenly. As agents we need to align ourselves to the tenants in what they are looking for when it comes to property occupation. We then need to help our clients as landlords adjust to that process.
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.
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.