You can have rent strategies for the short term or the long term. You can boost property value in a rental lift.
You can encourage a tenant to lease a property using fair and staged rents, or you can ask for the highest levels of income from the leased space and run the risk of a vacancy occurring.
Don’t forget that you also have net rents, gross rents, and incentives to work with in any lease negotiation. The income or rent that you start with can be enhanced over time, so look at the bigger picture when negotiating with tenants.
Don’t focus so much on the start rent, but the income over time. Look at the rent reviews and how they can support stable occupancy for the longer term.
In this audio program, John Highman talks about the rent and leasing strategies that are so important in today’s property market. You can listen to the audio and download it here:
Real skills are required and special people should be dedicated to the process of providing specialised services to investors and company owners.
In this audio program, John Highman talks about the special and unique skills required to manage a commercial or retail property today. Learn how to grow your brokerage business from a base of management activity and property management clients.
Property Facts and Controls
When you completely understand the strategies behind property management, you can develop special services across asset performance including the following:
– tenant retention
– income enhancement
– lease negotiation
– expenditure management
– net income generation and cash flow control
– lease administration
– maintenance management
– risk minimization
– renovation and refurbishment activities
– vacancy minimization
So there are many concepts and strategies within this list. If you take each individual concept, there are many specialised services that can be provided to your clients and customers.
In this audio program, John Highman talks about the importance of commercial and retail property management in brokerage performance today. Learn how to improve your brokerage business and the future commission opportunities available in your town or city.
In commercial property management today, there are many pressures and activities to consider on a daily basis across the tenancy mix, existing landlord requirements and targets, the property, and the investment requirements of the various stakeholders. (NB – you can get our commercial property management tips right here)
Given those critical facts, property managers are typically very busy on a daily basis, and as a consequence they can easily be distracted into the events of the moment. An ‘out of control’ property manager is a ‘disaster waiting to happen’ both for the client and the brokerage. That is why attention to detail is so important in the role and for each individual property manager.
Control all the Facts
Attention to detail in all of the property management disciplines is hard to maintain but will help control the issues and the events.
So what can you do here? When it comes to ‘attention to detail’, some things are more important than others for property managers and landlords.
What Should You Monitor?
So what are the property performance issues that should be optimized and controlled in this detailed way? Try some of these for starters:
Lease documentation – the leases that you have now in the property will support and direct the rental cash flow in different ways. Those leases have to be tracked so that all the elements of occupancy are correct and actioned. Most of those leases will be different in some respects, so do a full and comprehensive lease review by reading the documents ‘end to end’. Take notes of critical issues as you do that.
Tenant negotiations – understand the existing and upcoming tenant lease negotiations. Gather your required information well in advance so that you can start the negotiations in a timely and relevant way.
Tenant placement – don’t just put a tenant into a vacant shop. Make sure that it is the right retail tenant that offers the right merchandise for the location. Match the tenant into the tenant mix.
Rental cash flow – understand the rental types that match the landlords lease strategies and the current market conditions. Be ready to negotiate those rents as market conditions allow.
Arrears management – watch your arrears in a regular way. Don’t let them get out of control. Develop arrears strategies for any tenants that are worth keeping in the property for the longer term.
Budget performance – this involves both income and expenditure. Set the budget with due regard to incomes, leases, tenants, and local area supply and demand.
Vacancy factors – you will have vacancies to contend with, so allow for that fact in your property budget. Local area supply and demand will impact your leasing and vacancy alternatives. Watch the trends in the local area.
Property investment targets – the client will have targets and those targets should be at the center of your lease negotiations, tenant choices, market rental considerations, and expenditure planning.
Critical dates – watch the dates in your leases, and the relationships that those leases have to each other in a ‘timing perspective’. You don’t want too much volatility in lease dates and expiry dates in the one property.
If you have had a bit to do with tenants in leasing any commercial or retail property you will know that they can really delay things for their own reasons, thereby impacting the landlord in negotiation and slowing the agent as to finalizing the deal. As the leasing professional your job is to work with that challenge and encourage agreement to the benefit of the client.
Understanding the tenant’s situation now and applying that requirement to the current property market will help you with activating and progressing the lease deal. That then means a better negotiation.
Here is an interesting leasing based question for you. Can you believe what at tenant tells you about the property lease requirements that they have? Perhaps not totally, however you can ‘read between the lines’ of what the tenant is saying and doing, and get to some of the real facts of what is happening in their business world.
A good outcome?
A good lease negotiation is generally a result of the leasing broker informing the parties to the deal, then discussing, listening, and seeing through the challenges. Though all stages of the inquiry, inspection, and meeting process you can find out more of the tenant’s requirements and priorities.
So what really goes on in a lease negotiation?
The balance of any lease negotiation will shift and change based on just how much available space may be in the property market at any point in time; you have to prepare for that variation. It directly follows that you should be prepared for any and all of these tenant ‘delay’ tactics:
Asking the landlord to do some internal fit-out works
Seeking early access to the premises before documents are signed
Fit Out approvals slowing
Plans of the fit-out not available
There are many variations as to what a tenant will be looking to do with a lease negotiation. As the professional, you are to guide the process and negotiate through these barriers and many more. Control and research are the keys to any successful commercial property lease negotiation.
As the local broker or agent for the area and for the property type, it is your job to understand exactly what the market levels are doing for the property and for the location.
Consider the following market rental questions and issues as they apply to assets that you may have now for sale or for lease:
What is the market rental today in the property and how was that rental set? The true market rental must be something that was set through negotiation between willing and involved parties to a lease situation. The landlord and the tenant must have been fully engaged in a property negotiation to determine the real market rental.
What are the differences between the tenancies when it comes to location? Some locations are importantly different when it comes to setting and negotiating rent. Any building and any particular tenancy will have location factors to consider when looking at rent. Make sure you inspect the properties comprehensively to identify the location differences. Look at the strengths and weaknesses of the properties as you review income from the leases.
How will those differences impact in any market rental establishment or review? When there are differences in location, the market rental should be adjusted accordingly. Assess every comparable rental and look at the strengths and weaknesses evolving from location. Also determine the rental type in any lease, i.e gross, net, face or effective.
Understand the impact of any incentive that may still be active in the establishment of a tenancy and lease situation. Incentives should be discounted from the face rental so you can understand exactly what rent is really being paid.
What is the permitted and legal use of the premises? The use of the premises should be similar when you are comparing properties and market rentals. Also look at the factors of property zoning that apply to the different assets being compared.
How recent are the reviews undertaken? Rentals change over time so always determine the dates on which rentals would have been established in any review and market situation. If the date of review is relatively old, you will need to look at the property trends in the location since that review.
Where are the comparable properties and tenancies located? What are the differences that apply to services, amenities, and improvements? When you look at each and every property involved in a market assessment, location factors will have a big impact on the final rental outcome. Those location factors and other variables will include ease of access, visibility, branding, local transport, highways and freeways, and also are the services and amenities applicable to each property. That is why it is so important that you physically inspect any property involved in comparing market rentals.
How large are the tenancies that you are using or identifying as comparable? When you compare properties, understand the size of each tenancy space involved in each market review, and also look at the quality of the fit-out in each case. The larger the space, the lower the level of rental per unit of area under lease and of the area of space occupied. The quality of the fit-out will also directly impact the achieved rental.
Are the properties of the same type? You can only compare tenancies and properties when they are of the same type in a very similar location or precinct. Make sure that all the factors of property use and occupancy are fully aligned in your comparisons.
Have you reviewed the lease documents as part of the comparison? You can always get to the complete facts of any lease market review when you look into the lease documents and the terms and situations that applied to the last rental establishment and occupancy agreement.
Critical dates will apply to the market review and certain understandings will also be outlined within the lease document. Whenever and wherever possible, ask to see the lease documents that apply to the market review that you are using in the property performance and market rental assessment.
So there are some important and relevant things that you should look into and review as part of undertaking a commercial market rental assessment and property performance investigation.
Take the time to look into things comprehensively, and as part of that process inspect the properties, interview the tenants, talk to the landlord, check all elements of the documentation, and assess the rental trends for the location.