Having spent a lot of time working on and in various building and leasing projects over the years, I know that the opportunities of working with commercial tenants and landlords today will always bring in other business openings into the future. (NB – you can get more commercial brokerage ideas here in our Snapshot program – its free)
Everything in our industry is linked, and your clients locally will usually have diverse needs in leasing, sales, and property management at some stage. It is all a matter of timing and relevance. Are you ready for some property leasing action?
Landlord and Tenant Opportunity
Recognize that a simple property lease transaction can open the door for you with a key landlord or business owner. Relationships are important. It can also be said that if you know plenty of things relating to local rents, lease documents, occupancy costs, property performance, and fit-out improvements, you can add considerable value to a property in capitalized cash flow. Strategy and ideas can help facilitate an agreement between a landlord and tenant.
In this audio program, I talk about the importance of the tenant and landlord relationship and how you can tap into it as part of your commercial real estate career.
Let’s say you are looking at a property for a client for the first time. Here are some ideas and bigger income matters to look into as part of assessing a commercial property investment and its performance:
Market rental – Understand the levels of market rent for the property type and the location. Compare those figures to your client’s property. Have due regard for property improvements and age.
Rental income recovery – If you look at a group of tenants in a property, you can see many different rental recoveries. Make sure that all rental recovery methods are up to date particularly with rent reviews, options, and percentage or base rents.
Incentives – If incentives have been given to a tenant for any particular reason, check out that process. Are the incentives accurate and up to date? When do the incentives stop?
Arrears minimization – In larger properties today there will be arrears issues to handle. Work closely with tenants to ensure that rents and arrears do not get out of balance or become too large.
Licences for special areas – Some tenants can be given the use and or access to special areas outside of their demised premises but in the same building. The other areas will still attract a rent; the risk of that extra space(s) use will also require management under a lease or licence document. The most common licences today in commercial investment properties will usually be that for storage, car parking, antennas, or cabling. All of those things should be documented in a licence for which a reasonable rent is charged.
Electricity recoveries – If the tenant is supplied with electricity from the building grid then the landlord will have a recovery process underway. Look for the recovery methods and understand how they occur.
Cleaning and common area recoveries – If the tenant is using common areas or is having their premises cleaned as part of occupation then the recoveries will be relevant; they should also be accurate so check out the numbers and processes that apply.
Signage rents – A tenant related sign should incur rent. Signage rent is a valuable third income stream in a commercial property.
Car parking – Tenants should pay for car parking and that rental should be aligned to the location and property type. If the building and car parking is in the center of the city, then a premium for onsite parking should apply.
Outgoings recoveries – Depending on the rental type, outgoings will be a part of tenant charges and recoveries. Compare the outgoings recoveries by location and property type so you know that the averages apply. A building with high outgoings will be harder to lease or retain tenants.
So there are many things to check out as part of assessing property investment performance and income optimization. Are you ready to ask the right questions?
The leasing segment of the commercial real estate market is particularly specialized. Many agents choose only to work on leasing opportunities within their property specialty. That being said, if property leasing is your primary source of real estate income, then you need to consider the quality of property that you work on and the clients that you serve. Low quality listings can be huge amount of work for very little personal outcome or commission. Choose your listings well. Don’t let low quality listings drain your resources and time.
Vacancies in good properties will always attract enquiry. Poor quality properties and vacancies achieve lesser enquiry; that will drag down the inbound enquiry and the achieved rental rate. The net result will be lower commissions. So you need to be selective on the properties and the premises that you work with from a leasing perspective.
So the first priority here is that you should focus on the servicing of good clients and good properties in the market. Research the local area to understand exactly where these clients and properties are located. Put them at the center of your prospecting processes.
It can take time to build the necessary relationships with the appropriate and the best landlords. To make the matter a little bit easier, build an extensive database of business tenants through the region. In that way you improve your value to the landlords that you serve. Soon they will know that you have the necessary tenant contacts and leasing opportunities that they need.
Here are some essential things to do every day as part of specializing in property leasing services:
As a general priority, focus on achieving exclusive listing appointments with the landlords and the vacancies that you service. In this way you can control your market. An openly listed vacancy will give you little opportunity to grow market share, and if you achieve a leasing result it will be by luck more than process.
The first thing that you should do every day would be in telephone prospecting and cold calling. Given that you work with business type tenants, most of your prospecting can occur between 8.00 AM and 10.00 AM. Most of the businesses in your local area will be operational in that time. Your focus should be to talk to the business proprietors and to understand their leasing and occupancy needs. So the prospecting call is a questioning process a rather than a sales pitch. Seek to understand the tenant’s needs and upcoming leasing issues.
Build a significant database as a result of your prospecting activity. That database should be split into tenants of different business types and locations. The tenant database should be separate to the landlord database; it should also be a lot larger. One of the factors of attraction when it comes to pitching your services to a landlord will be that of your database size and its relevance to the property type. For this reason, ensure that your database is comprehensive, large, and totally up to date. It is difficult for a landlord to ignore an agent that has total control and awareness over tenant movement in the local property market.
Stay in contact with all of your clients and most particularly those with an exclusive listing. Keep them advised of the changes to the local property market when it comes to supply and demand for leased space. Watch out for the new property developments that could impact market rentals, lease incentives, and occupancy rates.
Check out the listings that are still on the market and those that are new to your property segment. Wherever possible, identify the resultant lease terms and conditions relating to any finalize lease deal. There will always be a difference between an asking rent and an achieved market rental.
Make sure that your current lease deals are progressing based on the terms of the lease agreement and or current negotiations. Every lease transaction should be supported by valid market rental, guarantees, accurate and legal documentation, and suitable deposits. Stay on top of your current agreements and the parties to the negotiations. Make sure that your lease negotiations are not stalling for any reason.
A leasing agent is always closely watching the activities of tenants and landlords in the local area. You can add to this list above by understanding the greater property opportunity locally and the good clients that you are targeting. Set some rules and start prospecting.
Industrial property needs to be well-positioned with due regard for transport routes and transport access. Look at the road configuration and proximity with due regard to heavy transport access and deliveries to and from the property.
Some industrial tenants and properties require access to raw materials and the labour market. This could involve public transport or ports, rail heads, and airports. Look at the access issues here.
Power supply with industrial tenants is particularly important as they usually have a high load demands and extended hours of electrical load. Can your tenants access the power they require easily? It may be necessary for you to talk to the power grid authorities and the tenants in this regard.
Can the tenants dispatch their product easily into the transport corridors and transport facilities within the state? This is particularly the main roads, airports, ports, and shipping facilities.
Is the property located in a recognised industrial area surrounded by good and busy industrial tenants? Talk to some of the other local businesses to see what they think about the local area.
Are there any unsold properties or an abundance of vacancies in the industrial precinct and are tenants and properties in high demand? Look at those vacancies and get details of the asking rent.
Does the precinct feature an abundance of investment type property or is there a balance of Owner Occupation in existence? Could other tenants in the area be looking for properties to purchase and get away from the rental or lease issue?
What is the ratio of floor area between the office areas to the warehouse? Is that ratio too high or too low given the trends of occupancy in the local area? This will be relevant to the type of property and the customers that they service.
What is the height of the warehouse between the slab and the underside of the steel frame supporting the ceiling or roof area? That dimension can oppose or restrict certain types of storage and/or access by transport vehicles.
What is the access to the warehouse area from the main road fronting the property, and how many roller doors service that access? Are those roller doors motorised, do they allow the entry of modern semitrailer vehicles? Is there a need for other access doors in the future and can they be easily installed?
Is there an abundance of good lighting, or natural lighting in the warehouse area providing good visibility?
What is the load tolerance of the warehouse floor for heavy vehicles, what are the dimensions of the floor surface slab and does it provide ease of access for loading vehicles and trolleys?
What are the dimensions between the supporting roof columns of the building? This will dictate the types of storage and pelleting load area which may affect any future tenant occupancy.
What fire prevention systems and security systems exist in the premises that will be relevant to occupancy?
Is the building fully compliant with health, safety, and fire regulations? It may be necessary for you to visit the local building authority to check this.
What is the external fabric of the building? Is it easily maintained, does it provide a quality appearance?
Is the internal warehouse suitably lined and insulated given the property usage that is expected?
Is the property flat and suitable for trucks and or loading? • Does the office area provide good quality presentation, services, amenities, and business environment which will support the tenant in their future occupancy?
Is there any asbestos in the building, and if so, is it documented and maintained within regulatory and legislative management practices?
Ask about environmental risks and threats from the property or from the occupancy.
Look at the local maps to see how the property fits into the location and the geography. Look for things that can impact property usage such as rivers and creeks that could flood. Look for slippage potential if the block is sloping or near steep areas.
What does the zoning of the property allow it to be used for? Check out the local development plans.
Has the block been filled or re-levelled? Get details of this. It may be necessary for a soil report to satisfy buyers or tenants as to property suitability for their operations.
So you can add to this list based on your local area and the types of industrial tenants that you deal with. Formulate a checklist from this and the other things that you can add. As part of the inspection process, take lots of photographs of the improvements and the property itself. Loading areas and turning areas for trucks will be of real importance to many property owners, as will hardstand space in the property.