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:
Understanding the intentions of sitting tenants when it comes to lease expiry
Monitoring the upcoming lease expiry dates approximately 18 months in advance
Negotiating any lease expiry’s early so you can deal with the vacancy in a timely way
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
Understanding the local business sentiment applies to rents, relocation, and property requirements
Keeping in close contact with all local businesses to attract new tenants to your property when required
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.
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.
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.
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