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Income Optimisation in Commercial Property Management

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Optimise your income in commercial real estate today.

When it comes to managing commercial and retail property, it is very important to optimise the income for the landlord.  The income for the property should be looked at both individually with separate leases, and across the entire property and the tenancy mix.

At the beginning of every financial year, there should be some form of budget created for the tenancy mix and the potential property income.  All of the leases currently existing will have rental strategies and rental increases to merge into the income budget.  This income budget can be incorporated into the business plan for the property for the upcoming year.  The best time to do the budget is in the months of April and May, just prior to the beginning of the financial year.

Here are some tips relating to income optimisation in commercial or retail property management:

  1. Always allow for some measure and method of adjustment given that the property market is always changing in your local area.  When you set a property income budget, it should be reviewed on a monthly and quarterly basis.  Any established trends in the local area should be tracked and then be used as a form of rental adjustment for the landlord if those trends are firm and established.
  2. The vacancy factor in your local area will change based on the supply and demand of available property.  To monitor this process, you should track down the changes to the property development plan in the region.  Look for any new developments that could have an impact on your property.  Those new developments will have a timeline of construction and occupancy; it is likely that those developers will also have an allowance for rental incentive to attract tenants into their property.  That incentive will have an impact on your property leasing strategies.
  3. Market rentals will change from time to time.  They do not always go upwards, and more commonly will stagnate or slightly reduce when the property market slows.  To help you with the levels of market rental, you will need to understand the impact of incentive in the market rental structure as it exists today.  If an incentive exists in any market rental negotiation, it creates what is called a face rental.  That face rental will be discounted by any property valuer back to a level that is truly aligned to the effective rental and the market.  Incentives create a false level of rental.
  4. Business sentiment will change from time to time based on the local and regional economy.  Some business segments and business types will be more active and successful than others.  Track those business segments and monitor the needs for property change or occupancy.  Some of those tenants could be relocated to your property if the opportunity arises.
  5. Existing tenants in the property should be categorised into long-term tenants and short-term occupants.  Some tenants will be more attractive to the landlord and the performance of the property over time.  They may have a tenancy profile or business identity that encourages other tenants to the property.  Reviewing the tenancy mix is called tenant retention.  You can create a tenant retention plan as part of your business planning model.
  6. Pressures of expansion and contraction will change from time to time with all other tenants in your tenancy mix.  Look for those changes, and keep close to those issues through the business year to identify any pressures of change that may need to be accommodated in the building.  It is better to have a tenant in your property that you understand and appreciate, than find a new one that is unproven and costly in occupancy changeover and leasing costs.

The income for a commercial or retail property can be enhanced when you fully understand all of the above factors and adjust the property accordingly.  It is not unusual to adjust the business plan or for a property three or four times during the financial year.

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Commercial Property Agents – How to Get Comparable Market Evidence

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Do comprehensive market research on comparable properties

The commercial and retail property market is changing frequently and in different ways.  This is always relevant to your location and particular property type.  That being said, you really do need to know the current comparable market information when it comes to the listing of any property.  The clients that we work with should be suitably primed and briefed with the right information so that they can make correct choices when it comes to prices, rentals, and marketing.

Experts

So we are the experts when it comes to marketing and transacting commercial and retail property.  If we are recognized as such, the enquiries and the referral business will come to us; in an ideal world, this is a great way you to work in the industry.

What we can do here is show the clients and prospects that we work with our comprehensive knowledge of the marketplace and the current property activity.  This gives us a huge advantage when it comes to negotiating with both parties in any sale or lease situation.  The market evidence can be used to negotiate through hurdles and create agreement.

Here are some categories of comparable market analysis that will help you in your knowledge:

  1. Competing properties should be identified for each and every listing on your books.  The clients in each case should be advised of the prices and marketing strategies applying to those other competing properties.  It may be necessary for you to adjust your marketing recommendations based on the pressures that the competing properties create.  When it comes to very unique property, you can remove your listing from the market until such time as the competition has been reduced.
  2. Sale prices will always change.  Getting to the real facts of each and every transaction can be a challenge however many other commercial agents will share price information after the transaction has been completed and closed.  The industry is rather specialized and good agents will normally share market intelligence within reason.  Accurate price information will be useful when it comes to the next listing within the property type.
  3. Rental evidence is required to support the prices and returns for good investment property.  When the property market gets tougher, or enquiry becomes limited, the buyer expectations will change to an increased yield or return.  You never really tough market, the price fall compared to the income return can shift by as much as two per cent or more.  This shift is in the percentage return on investment.  Whilst Sellers may not like to accept the real facts of the market, as the expert commercial real estate agent, you need to convey the facts from closed transactions, rentals, and prices.  There is no point taking on an overpriced listing that can waste your time and take you away from other more realistically priced and or rented properties.
  4. Time on market will change constantly and seasonally throughout the year.  You will need to differentiate between property types and property quality.  There is a marked difference between the time on market for quality property verses that which applies to an ordinary or below average property.  Allowances should also be made for the chosen method of sale or rental as the case may be.  Some clients may have been influenced by other agents giving poor information.
  5. Methods of marketing during the year may need to change subject to the expectations of the prospective buyers or tenants.  Seasonal festivities such as extended public holidays should delay the promotional of particular properties.  Start the campaign when you know that the prospective buyers or tenants are looking around.  Choose the methods of marketing that can reach the target audience efficiently and effectively.
  6. Supply and demand for property will change throughout the year based on prevailing economic circumstances, the sentiment of the business community, and new property developments in the location.  Monitor the trends of property development at the local planning office.  Get updates regards new developments under construction or consideration.  Be aware of the construction costs of different property types and the consequential viability as it applies to new property developments.  From time to time, the expectations of return on investment in a new property development together with the impact of the actual construction costs will limit the viability of any project.  Property developers work on margins and levels of profit before they will commit to a project.  They also seek to understand the pressures of growth as they apply in the local business area.  You also can monitor these things.
  7. Changes to business sentiment and the community will always shift due to the changes in the local, national, and global economy.  That being said, there are always segments of the business community that are successful given that they serve and act within different market demographics or segments.  Understand who or what they are, and tap into them for the opportunity of a property transaction.

Enquiry types come and go throughout the year in commercial real estate.  If you maintain a good database, you will understand the types of enquiry coming in now and what those people or businesses are looking for.  You can advise your client accordingly and help them match their property to those requirements.  You can also shift your prospecting efforts accordingly to get better results from your listings and transactions.

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