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Shopping Center Management Strategies that Really Work

Female figures with shopping bags uid 1460952
Shopping Center Management is largely about the customer.

The shopping centre management process is quite special in so many ways. That is why only certain brokers and agents take up the challenge of retail leasing, management, and sales. There are things to know and things to do. The benchmarks and the indicators are different in ‘retail’.

 

(N.B. these ideas are also sent out to regularly to our friends in Commercial Real Estate Online Snapshot to help amplify brokerage results…. Get your access here)

The goals and targets that are standard to the retail process are usually improving income, reducing vacancy factors, and keeping your good tenants for the long term. You could say that they are the major internal factors of property performance for a typical retail property or shopping centre today.

 

Know the Retail Factors of Influence

So what else do you need to think about? In addition to the nominated items, there are the ‘external factors’ that are harder to control. The external factors are typically shopper spending patterns, shop visits, frequency of shopping, and the amount of money spent on average per shopper. The marketing of the property will be part of the overall plan.

 

You can now see why a property performance plan is really important in any retail property today. So let’s put some of this together.

 

To keep all of these things in balance and on track there are a few business factors to implement in the running of a retail shopping centre. Here are some of them:

 

  1. Develop a business plan – A business plan in retail shopping centre performance is and should be all encompassing, generally covering all the issues of the daily running of the property and the involvement of tenants, customers, and investors. With a good business plan, you can make choices when it comes to rentals, tenant movement, renewals of leases, and property expenditure.
  2. Know your tenants and their priorities – Some tenants will be trading more successfully than others. Look for the differences to see what can be done with trading and sales. It is wise to look into gross profit and net profit margins with any tenancy group. The averages will tell you if a tenant is trading more successfully than others.
  3. Review all of your leases – The shop lease is the foundation of income recovery and growth over time; with all leases you must know how they work and what is involved in enforcing lease conditions when matters of change or risk occur. Each lease is different so you will need to build a profile of the tenant’s lease and the critical dates. Track the critical dates so you can take action early in any issue or problem.
  4. Establish a tenant retention plan – Differentiate your tenants so that you are protecting and encouraging the best tenants to stay in the property for the long term. They may need encouragement, so a tenant retention plan lets you set the rules to the process.
  5. Watch the sales and trading figures – You can watch these figures if you have the cooperation of the tenants in the property. You can gain and protect that cooperation through the terms of the lease. From those figures you create graphs that show moving annual turnover (MAT) and sales in merchandise or retail segments. Ideally the tenants in the property should have to produce turnover figures for their shop on a monthly basis. From that point it is easy to see the retail segments that are selling products well, and also the other segments that may be struggling. That is where the tenant placement and tenant mix then has a valuable strategy for the property. You can build clusters of tenants around the property so that customer interest is encouraged and sales are boosted between like or complementary tenants.
  6. Develop a marketing plan for the shopping centre – A plan of this type will allow for the retail sales seasons at different times of the year. There will also be themes for the local area and customer interest.
  7. Reduce vacancies with a tenant retention plan – The only reason you need vacancies in a property is when you are about to renovate and move tenants around. A few vacancies will give you the flexibility to change the property. When you look at the total tenant mix in a property, some tenants will be more important than others to the future of the asset. That is where the tenant mix plan comes in; you decide who you want to keep in the property and for what reason. You then build a rent a leasing plan around those factors.

 

So there are some good things that you can do here with retail shopping centre leasing. Understand the property in a comprehensive way. Then you can match the property strategically into the location and the customer demographic.

(N.B. these ideas are also sent out to regularly to our friends in Commercial Real Estate Online Snapshot to help amplify brokerage results…. Get your access here)

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Shopping Center Managers – How to Assess and Improve Retail Shopping Center Performance Comprehensively

woman with shopping bag
Understand the reasons behind and for a successful shopping center.

A retail property and particularly a shopping centre is a special asset in many different ways.  It takes skill and knowledge to make something of property performance.

There are numerous things to put in the retail ‘balance’.  Special strategies are required.  Are you up to the retail challenge?

Understand the retail facts

So what are the variables that make this so challenging?  Consider these for starters:

  • Tenants struggling to make sales – Some tenants will always struggle given that they may not be offering the right products or services. They may also be inexperienced in retail trade and sales.  If you have a difficult tenant in a property  it is perhaps better to move them on at the end of their lease (assuming that they can trade until the end of lease)
  • A tenant mix that just doesn’t work for one reason or another – A poor group of tenants with weaknesses will quickly slow customer interest and repeat visits. That weakness then leads to sales decline.  You must quickly fix a retail shopping centre tenant mix if you have issues that are weaknesses and impacting property performance.
  • Vacancies currently in the property or those that can be expected – When you have empty shops to resolve, ensure that you are coming up with immediate strategies such as creating short term occupancy and placing marketing material in the empty space. Customers will see the vacancy so build some ‘vibrancy’ into the empty space.
  • Market rentals and strategies for the property – Understand what the rents are doing for the property type in your region. How does your property compare?
  • Outgoings recovery from the tenants – The lease documentation will be important when it comes to outgoings strategies and recoveries. The rent types used in the property will also have an impact.
  • Customers and their spending patterns – At different times of the year the sales results change for the retail sector. Watch the process and how it is impacting your tenant mix.
  • Lease documentation that is complex and critical to occupation – Understand all of the leases in the property. Some will be better than others.
  • Landlord net income requirements – The landlord will have expectations when it comes to the net income they achieve. The expenditure in the property will place pressures on cash flow.  Understand how those things work in your retail property.
  • Retail sales patterns for the region – Always look at shopping and sales trends for the region. Understand if your property is being pressured by other properties locally.  Understand why that is the case and try to fix the weakness.
  • The configuration and presentation of the property – It is a fact that any retail property will be higher in upkeep so costs and strategies will be required. The presentation and functionality of the property has to be at the standards expected by customers.  In that way the customers can keep coming back to the shopping centre.  A retail property will soon be in decline if maintenance and presentational factors and lacking.

Every one of these issues can demand specific focus and effort from you as the specialist broker to bring about a resolve for all concerned.

So if you are a retail property manager or specialist leasing manager, you will know the importance of what I am saying here.  Are you up to the retail challenge?  Can you handle these issues in a comprehensive way?  Plan and improve retail property performance from a base of personal retail skill, knowledge and strategy.

You  can get more tips and ideas about retail property performance in our eCourse ‘Snapshot’ right here.

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Commercial Property Leasing – A Tenant Mix Orchestration for Property Success

people walking in shopping mall
Analyze your shopping center and tenant mix.

In retail property and shopping centre performance today, the tenant mix and the income created from the tenants in occupancy needs to be shaped and improved over time.  That is where ‘tenanting mix orchestration’ is a useful skill to learn and to feed into the property investment strategy.

The suggestion here is that the tenant mix can be shaped and improved.  That is certainly the case in retail property performance.  That is your job.  The landlord will benefit greatly over time by a well-considered and controlled tenant mix.

Every lease and every tenant in occupancy should be looked at in balance with the surrounding tenants, the shopper clusters, and the customer profiles.  The terms and conditions of each individual lease should be negotiated to standards that match the investment targets of the landlord.

Correct Tenant Placement

Here are some ideas to help you study and orchestrate the correct retail tenant mix and property improvement plan for your landlords:

  1. Anchor tenants – You have to start your assessment around the stability and business activities of the anchor tenants. Look at the lease conditions that apply to each and every anchor tenant in the property.  How long are they in occupancy?  What are the terms and conditions that apply to their occupancy?  How can they integrate their business activities into the success of the overall property?
  2. Customer profile – You can’t move your property to another location. On that basis your customer demographic will be specific to certain incomes, employment, and family profiles.  Understand your customer base and how those customers like to shop locally.  You may need to undertake a marketing study through the local area to get the most recent and up to date information about customer activity and or future needs.  When you understand the customer, you can set the strategies in place for the ideal tenant mix and property profile.  You may also be pulling in the customers from outside of the area through tourism and transient people.
  3. Property design – Every property will have factors are designed to understand and integrate into the tenancy plan. Entrance points, common areas, congregation points, and transport drop off points all influence foot traffic and potential retail sales.  The tenancy mix should be designed for customer interaction and sales improvement.  That base strategy requires you to put the right tenants in the right locations.  You will have a mixture of small and large tenancies to consider.  You will also have tenancy locations requiring special consideration such as food retailing, fashion retailing, entertainment, and services.  You can get plenty of ideas by looking at other comparable properties locally or regionally.

From these three simple concepts, you can set in motion a comprehensive tenancy mix plan and retail sales strategy.  Understand the property, the tenants, and the customers.  Balance at equation so that the landlord can optimise rental returns and minimise vacancies.  That is what tenancy mix orchestration is all about.

Get our eCourse here for Commercial and Retail property agents and brokers.

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Tips to Leasing Vacant Shops in Retail Shopping Centers

man in fruit shop
Retail shop leasing is special.

A vacant tenancy in a retail shopping centre can be massive drain on retail business and customer sales for all the tenants surrounding it.  For this reason a vacant tenancy has to be resolved quickly and efficiently.

If you have too many vacant tenancies in the one property it can set the foundation for a decline in retail trade.  Customers like to visit a property that is attractive, vibrant, convenient, and that has the required tenant mix.  Vacancies can impact that profile.

Over time a decline in customer sentiment will have an impact on market rental for the landlord.  Your primary focus in leasing and managing a retail property should be to maintain occupancy at a sensible market levels.

To lease a vacant tenancy some real strategies are required.  In a ‘rising market’ the leasing process is not so much of a problem, but in a ‘slow or declining market’ the vacancy challenge can be significant.  Here are some rules to help the process.

  1. Stay very close to the existing tenant mix and the leases supporting that mix.  Some tenants will from time to time have challenges and problems in business or occupation.  Keep communicating with the tenants regularly to understand their challenges and help them through any occupancy issues.  In a ‘down’ market, a vacancy can be very hard to lease.  It can be a drain on rent and outgoings for a very long time.
  2. Make sure that you are working well in advance when it comes to lease renewals or option negotiations.  Most leases will have time provisions that apply to the renewal or the option process.  That being said, there is nothing to stop you working earlier with the tenant to achieve a satisfactory renewal or option agreement.
  3. Some existing tenants in the property may require expansion or relocation.  Be open to their business needs, and identify alternative locations within the property that may suit or solve the expansion or relocation problem.
  4. Review other properties in the local area that may be competing with you and your tenancy mix.  Look for the challenges and the opportunities existing in their tenancy mix.  Approach their more successful tenants to see if relocation is possible.
  5. Given the sales performance of your current tenancy mix, look at the segments that are quite successful and the others that are not so.  There will be reasons for a tenants result in sales.  It could be the product or service offering, the tenancy location, the tenant themselves, or the marketing process.  Some of these things can be solved through careful management procedures.
  6. Monitor the clustering affect within your property where some tenants seem to be feeding sales off each other.  The mix can be improved through improving the clustering process.  Identify the tenants that can work with each other with the same customer type.  For example, a coffee type tenant could be placed alongside a ladies fashion tenant and a ladies shoes tenant.  A coffee tenant would be extending the customers time in the general area and potentially the sales potential.
  7. Consider the placement of the anchor tenants in the property and how they interact with specialty tenants nearby.  Proximity to the anchor tenant will be a leasing advantage for some tenancy types.
  8. Create a tenant retention plan that encourages ongoing occupancy for those priority tenants in the mix.  The retention plan will also help you when it comes to replacement strategies and removing poor performers from the mix.
  9. Leasing decision should be based on available occupied space, the prevailing market conditions, market rental, lease incentives, and occupancy costs.  Stay ahead of these industry trends and challenges.  Look for any new or upcoming property developments that could interfere with or change these factors.

If you do have a vacancy in the property, and a long term lease seems to be difficult to achieve, look at all short term occupancy opportunities with some of your other tenants, or casual tenants from elsewhere.  Short term occupancy at a lower rental will still help you achieve the vibrancy in the property and maintain the customer’s interest.

You can get more tips like this in our regular newsletter right here.

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How to Lease a Commercial Property Today

commercial real estate fee negotiation.
lease strategies are really important

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:

  1. 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.
  2. 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.
  3. 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.
  4. 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.
  5. 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.
  6. 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.
  7. 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.

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Retail Leasing Tips for Commercial and Retail Leasing Agents

man in fruit shop
Choose your tenants well to help your retail property thrive and grow sales.

In retail leasing, you really do need to know your territory and tenants.  The retail business segment is under some pressure at the moment in many respects.  The internet has changed the way shoppers buy goods, and the spending patterns of people have changed due to the global economy.

When times are tougher in retail shopping and trading, it is the ‘convenience’ type tenants that still do quite well.  Convenience tenants are usually food and consumable related (baker, fruit and veg, butcher, chicken, and fast food).

To help your shopping centre trade and thrive in tougher retail times, you need to closely look at your tenant mix and the clustering of tenants.  Everything has to be done to encourage more trade for tenants and between tenants.  Tenants should be selected on the basis of relevance to your local shopper and their needs.

As a retail leasing expert you can get close to the retailers and the business community.  This will help you find the right tenants and the successful traders.

Here are some ideas to help you build a matrix of retail leads and opportunities in retail shop leasing.

  1. Franchise groups are a proven business model.  Some of them will suit your property and shopping centre.  Talk to the franchise groups to understand what it is that they need in a property to consider occupation and leasing.  Find out what their business model is and the standard lease terms and conditions that they require.  Some franchise groups may also not be located in your area and may be looking to enter the region.  Make some telephone calls and ask the questions of the right people.
  2. Business owners in the local area know so much about the local businesses and the community.  Approach the business owners and the wholesalers or manufacturers of retail goods and services.  Through that contact they may give you some leads for talking to successful retailers.
  3. Existing properties in your local region will contain successful tenants and businesses.  Check out those properties and talk directly to the tenants.  Some of those tenants will be quite successful even in a slower retail cycle.
  4. Shopping Centres and Shopping Centre Managers will offer lots of retail leasing leads and needs.  Shopping Centre Managers will have leasing needs in their properties from time to time.  Their tenant mix will change and the property may expand or undergo redevelopment.  Either way, retail leasing activities will follow in some form or another.  Most shopping centres have a business plan and a tenant retention plan, in addition to standard lease strategies and lease marketing efforts.  Get to know your shopping centre managers for the leasing needs that will arise.

Landlord owners of retail properties and retail shopping centres need experts in leasing to help them.  This is where specialisation in retail leasing is so important.  You can fill that requirement with some specialised industry knowledge and leads.

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Retail Leasing Tips and Ideas for Commercial Property Agents

woman walking in fruit store
Retail shop leasing requires real estate agents with special knowledge and excellent negotiation skills.

When it comes to your career as a retail leasing expert, market knowledge will help you greatly when it comes to market share and market dominance.  The retail property market is quite specific and special.  There are many factors to consider and be aware of the as part of the specialized leasing task.

Retail property today is experiencing some challenges.  The shifts in retail spending and due to the pressures of the Internet are quite apparent.  There are also other pressures on retail that apply due to the global economic downturn.

That being said, retail spending doesn’t disappear, it just changes.  That is why a retail property experts and particularly leasing specialists are perhaps some of the most skillful in the property market.  They know what works and what doesn’t.

Here are some factors that require constant attention as part of servicing the retail leasing industry and shopping centers today.

  1. It is wise to have a solid awareness of the significant and larger retail properties across your region.  They will have pressures of change, refurbishment, expansion, and contraction.  Those pressures will have influence on nearby competing properties and the movement of successful tenancies between each.
  2. Franchise groups are now on a significant part of retail property performance.  In many respects, they require occupancy opportunities in certain locations and property types.  It pays to keep in close contact with the franchise groups for this very reason.  They will have critical criteria that must be satisfied when it comes to a new tenancy and property occupation.  They will usually share this information with the other retail leasing experts that could assist them with finding another tenancy.  It is all so common for those retail groups to provide their own special lease documentation.  Whilst this is convenient, it also has some concerns for some landlords.  If you are involved with a lease negotiation of this type, the landlord for the property (your client) should have a good property solicitor acting on their behalf in the scrutiny of the franchise lease document.  In most cases, the franchise lease document will coincide with the terms and conditions of the franchise business agreement struck between the franchisee and the franchisor.  Landlord flexibility is required to make this balance work.
  3. Rental strategies in retail property will vary from property to property and location to location.  The rental for a tenancy is simply not just the commencing rent.  It is a combination of many things including the commencing rents, the rent review profile, any lease incentive, and outgoings recovery.  The right combination of these things will help improve the occupancy for the tenant and the landlord.
  4. In any retail property, the tenancy mix will be important to the stability of occupancy and relationships between tenants.  In larger shopping centers, this problem manifests itself in many ways.  It pays to consider the clustering of tenants in zones within the property.  In this way you can build on the sales relationships between like tenants in the cluster.

Retail leasing experts will usually spend significant time in the marketplace reviewing the performance of nearby properties, and meeting with retail tenants.  These factors will produce market intelligence and feedback that allows the retail leasing expert to bring experience and relevance to the clients that they act for.

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Embrace Retail Tenant Mix Analysis in Shopping Centre Leasing Today

woman shopping for groceries
Retail tenant mix analysis is a special skill for specialised property agents.

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.

  1. 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.
  2. 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.
  3. 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.
  4. 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?
  5. 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.
  6. 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.
  7. 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.

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Commercial Property Managers – Security Tips in Managing Commercial and Retail Buildings

Security control room in office building
Devise a security system that builds better tenant and customer comfort.

When you manage a lot of commercial or retail properties you will know how frustrating and diverse the issue of security can be with many different property types.  Each property will have factors of security that should be managed and optimised.  Every tenant has to integrate into the security plans and systems for a managed property.

There is a lot of difference in security systems and procedures that are utilized in retail, industrial, and office properties.  On that basis you really do need to know each managed property very well when it comes to security needs and responses.

A well-managed and operating property will be a reflection of the good property management systems that are implemented on the property.  Security is part of that.  Here are some security concerns and aspects that could be considered as you manage your portfolio.

  1. Fencing around the property should be reviewed for effectiveness.  That will include any breaches, lighting issues, modification, and stability.
  2. Many properties will have car parks that require special security considerations.  Customers and tenants using the property should be provided with a secure car parking environment both in office hours and out of office hours.  The location of the property will have some bearing on this car park issue.  Do not forget to look at how the car park is used at different times of day.
  3. Loading docks in the property will be accessed at special times and with differing types of vehicles.  How is this done and what security concerns evolve from this?
  4. The entrances and exit points to the property should be looked at.  As part of that process consider the door ways and the exit points that are involved in emergency evacuations.  It is likely that you will need expert consultants to help you with planning workplace health and safety issues as they apply to property use and access in times of safety or emergency events.
  5. Lighting in a property will always be of concern.  Lighting should be checked frequently to ensure that it does the job it is required to do.  If the building is used after hours by customers or tenants, the lighting will need special consideration.
  6. Guards and security patrols may be required in a managed property.  It really depends on the property location and the tenant mix.

The age, design, and location will always impact the way that a property is used by the tenants and the customers.  It should be noted that a retail property will usually have greater levels of security coverage and response to keep the property safe and secure for occupants and customers.

Security is a valid need in property performance and function, and on that basis should be structured into the outgoings costs recovery for the property.

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Staff Frustrations in Commercial Property Management Today

woman wrestling with cables
Choose the right commercial property managers

There is no doubt that commercial property management is very different to residential property management, yet so many real estate agents put their ordinary property managers (with only residential experience) on to the management of commercial or retail property.  The process sets the scene for incompetency; the problem is magnified when the property in question is retail given the uniqueness of retail property performance and tenant mix.

The two people that suffer through all this are firstly the property manager because they just do not know what to do and secondly the landlord because the property is poorly managed.   If the situation is not closely monitored the agency will lose a client and expose itself to the potential of litigation.

Agency principals beware; if you are going to manage any commercial or retail property, only do so with the right people and give them the knowledge to support you.

Without knowledge and experience in commercial property, residential managers find the change of property type really hard.  They just do not have the experience in the things that happen every day such as:

  • Vacancy management
  • Lease optimisation
  • Tenant mix strategies
  • Maintenance controls in larger properties
  • Budgeting property performances
  • Lease documentation and enforcement
  • Expenditure controls
  • Risk management
  • Landlord reporting
  • Supply and demand management of available space
  • Forms of lease documentation and negotiation
  • Critical date management from the leases
  • Rent review and renewal negotiations
  • Environmental and heritage issues
  • Lease assignments and sublets
  • Lease negotiations and variations with new tenants to the property
  • Essential services management and compliance to codes
  • Occupational health and safety

The list can go on into many different things and special challenges.  The larger the property that you manage, the more complex the issues that will have to be handled.

At the very centre of the commercial and retail property management processes and the basic keys to what you are attempting to do.  Here is a summary:

  1. Manage the tenants in the property to the rules of the leases and the occupancy codes applicable to the property and the location
  2. Maximise the income for the property given the local property market, the leases, and the focus of the landlord
  3. Control the expenditure of the property given the requirements of each lease and the authorities of the landlord
  4. Maintain the property to the targets of the client, the budget and the pressures of occupancy
  5. Integrate the property into the community and the business segments that it serves.
  6. Optimise the income through vacancy minimisation.

If none of this makes sense, then knowledge is required to build up the skills and processes in commercial and retail property management.  I did say earlier that retail property is very special; it requires a unique awareness of rents, tenant mix principles, and retail leasing property legislation.  When in doubt see a good property solicitor.

If you want to learn more about Commercial Property Management join our mailing list here and get our bulletin.

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Commercial Property Agents – How to Do a Lease Audit in Property Management Handovers

High rise office buildings
Always do a lease audit at property handover

When you take on a new property management listing, one of the key things that must be done very soon is a lease audit.  Without a lease audit you really do not know what you have in the tenant mix and how the property is performing with the existing tenants.  Here is an article from our bulletin for Commercial Agents.

The audit process will help you understand big and important issues including the following:

  • Tenants by name  and location
  • Rental conditions from the lease
  • Upcoming options and rent reviews
  • Arrears and current rent charges
  • Risk and Liability that can apply to each lease
  • Tenant and Landlord covenants that must be complied with
  • Special terms and conditions in the leases that could apply to the tenant or the landlord
  • Permitted use provisions of the premises, etc

So, the audit process will tell you a lot about the property and its current status.  Checking leases against the events that are applicable to the tenants now will let you know if all lease matters are up to date.

It is interesting to note that far too many property managers will accept the detail of a tenancy schedule without checking the leases for each tenant.   It is so common to find that tenancy schedules are not up to date or are incorrect.  That then is a recipe for disaster and errors with the property.

Here are some tips to do a lease audit with your new commercial or retail property management appointments.  You can add to the list so you create a checklist that can be used over and over as you bring in new properties to manage.

  1. Inspect the property so you understand what it looks like and just where everything is.
  2. Make a list of tenants as you inspect the property, so you can cross reference that information later from the leases.
  3. Get plans and drawings of the property that show you the layout of the common areas and the leased areas.
  4. Check out the boundaries of the property so you know what other businesses or property owners are adjacent.  Look for any issues of conflict in boundaries and property usage.
  5. Go through all the leases with reference to the information that you gained in your property inspection.
  6. Create your list of information from the lease review, with particular attention to rent reviews, options, end of lease dates, tenant names, locations, and rentals paid.
  7. Get an up to date list of rent payments for each tenant.
  8. Check for arrears with each tenant.
  9. Split the rent charges into rental (all rents for the premises), outgoings, recoverable charges, and any other miscellaneous charges.
  10. Look for supplementary information and documents of occupation such as naming rights, car parking, common area usage, storage, and other charges.

All of this information must be cross referenced against what you see in the property, the rent invoices today, the discussions that you have with the tenants, and the handover information that you may have been given by the previous property manager or landlord.

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How to Do a Market Rent Review in Commercial Property

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Get all the facts when doing a Market Rent Review

In commercial and retail property, the market rent review can be quite challenging.  There are many variables that can apply to the review process.  As a property manager or leasing manager, it is important that you gather all the correct facts in preparation for the market rent review process.

So, exactly what is a market review?  It is the establishment of a rental taking into consideration similar rentals with similar properties in the same general location.  Unfortunately, this process can be difficult and slow given that many other properties are not directly comparable.  In some cases, your particular property may be so unique that you will need to look well beyond the local area for comparisons and market rental evidence.

As part of the process of gathering information, keep your notes regards findings and assumptions.  When it comes to a rental dispute, these notes and findings will be supportive of your rental choices.

So here are some ideas to incorporate into the market rental review process:

  1. Review the lease document fully before you start the process.  Understand all the terms and conditions of the lease document with particular care in identifying critical dates connected to the review.  Some of these critical dates will need to be satisfied and adhered to as you negotiate between the landlord and the tenant.  Time can be of the essence when it comes to responses and notices in the review process.
  2. After you have reviewed the lease document, visit the property and inspect the premises internally and externally.  Take many photographs as evidence of the existing conditions of occupancy.  As you move through the review process, these photographs will help you identify and match the tenancy to other relevant properties.
  3. When you look through the tenancy, understand the premises as supplied to the tenant by the landlord.  You cannot take into account any factors or improvements of occupancy provided by the tenant within their own fitout.  The rent review applies to the premises as supplied to the tenant by the landlord at the commencement of lease.  Go back to the lease negotiation file for information in this regard.
  4. If the tenant occupies space within a large building, it is possible that you will have other market rental evidence within the single property.  This will be of great assistance if that is the case.
  5. Any rental evidence that you are given or find in and from other properties, should be qualified to understand that the rental is truly on the basis of market evidence.  There is no point in using rental information that was generated from review methods other than the market process.
  6. Other situations of market rental evidence may be biased or skewed due to the impact of lease incentives negotiated between of the landlord and the tenant in particular buildings.  If any lease incentives were provided in those comparable transactions, the value of the incentive should be removed from the calculation so you can truly understand the effective rental in each particular case.
  7. Inspect the premises located in other properties that you believe are comparable.  Take into account the factors of occupancy, services and amenities, property access, lease terms and conditions, permitted use, and length of lease in each case.  Property managers will usually share information to assist you in your market rent review.  A reciprocal process of information should apply at a later stage when they need help with their property.

This list can be expanded subject to the factors of property type, lease terms and conditions, property age, and market evidence.  Expect that the process of review will take time so start the activity early.

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