If you are about to take on a new commercial or retail property from a management perspective, there are things to think about. There are things to think about and the property management handover is critical to gathering the right information. Every client and every property will have unique issues to prepare for and ask questions about. (NB – you can get plenty of property management tips in our Snapshot program right here – its free)
There is something to remember here about a property handover and why it is so important; you only have a short period to get the full information about the property and its performance over time. Questions must be asked of the previous property manager, owner, or tenants.
So here are my experiences and ideas relating to taking over a complex commercial or retail property. Preparation is the key to success in capturing all the recent and relevant property detail. You may be able to add to the list based on the location and the landlord:
Check out the physical aspects of the property – it always helps if you visit the property first before you do other things. The visual aspects of the property will help you significantly with investigations and questions.
Review the tenancy mix – in a property with several tenants, look at the types of businesses, location of each tenant, and the performance of the property for the tenants in situ. Some tenant types put pressures on the property such as security or staff issues.
Review all the leases relating to occupancy – the leases will have unique elements of occupancy to review. All leases should be read; extracts and critical dates should be taken from each lease where you can see important facts impacting occupancy.
Understand the vacancy factors – any vacancy now or in the future is an issue. Resolve vacancies through a tenant retention plan, a marketing plan, or a targeted leasing program. You can also move existing tenants around the property. Think outside the square when it comes to tenant movement and placement.
Look at maintenance and risk factors – any person owning a property assumes risk and must plan for the challenges of property ownership. The building, the improvements, the location, or the tenant mix, can create risk matters and pressures. See things for what they are and how they could challenge the investment performance.
Review income and expenditure results – there will be a pattern of income and expenditure to review and consider. The last few years will have value to you when assessing passing income and net income. The results of the last few years will help you set new budgets for the property given the existing tenants, leases, vacancies, and landlord targets.
Talk to the landlord about expectations and reporting – every landlord will have certain requirements of reporting and control. The property will have income and capital value targets over time. How can you report to that criteria for the current property owner? Have you got a software property management program that allows you to report conveniently about the asset and the current results of income, leasing, and tenant activity? The information that you gather from a property management handover will be captured into the software that you are using to manage the property.
So, there are many things on this list to investigate. One thing or one question will lead to many others. As you take on a new property to manage, be prepared for the information and the facts that come your way; take plenty of notes.
The services that you provide in commercial property management are quite special and should be costed accordingly. Care and consideration is required when you are considering establishing a new fee or quoting on a property management service. There are variables at play that could have an impact on your fees suitability and amount.
If you set the wrong fee in quoting on a property management service, you could position yourself for loss of income over time when compared to the time you are committing to the property and the client. Under resourcing is a big problem in our industry.
Don’t provide the client with a low fee quotation simply to win the new business opportunity as a property management appointment. Understand the property, the client, and the tenancy mix before you set and finalize the fees for service. Look at the ‘big picture’.
So what do you do here?
You should understand all of the property issues that may put pressure on your management services. Many an agent has lost a property management client and property appointment simply because the agent has been unable to control the property efficiently and improve performance over time; under quoting the fee will very likely create that issue.
So what do you need?
You need the right people and the right processes to manage a complex office or retail building today. Don’t underestimate the required skills of the process and the demands of the property. Match the people and the processes to the property.
Here is another error that is all too common. As a general rule, don’t set your fees based on a percentage of passing income. Whilst that may percentage approach be an industry standard in your location, it is only an indicator and should be compared to many other factors and choices. There are other things to look at and consider before you finalize your fee structure and client services.
Assess all the factors
Consider the following factors as you work through this process of property management assessment and opportunity:
Landlord requirements – some landlords are unique and special when it comes to property management requirements and services. The complexity of the property and the cash flow can very likely create pressures on reporting and financial controls. You could find yourself generating many variations of reporting to satisfy the challenges of the property and the clients requirements for information. Interview the client as the landlord before you quote on the final fees for service.
Property complexity – inspect the property completely and thoroughly. There may be issues in the property to control and manage over time. Look specifically into the issues relating to maintenance, rentals, vacancies, lease management, tenant volatility, and property performance. Every property will have certain strengths to work with, and weaknesses to work through and resolve. The weaknesses are the ones that will challenge your task and time management. The weaknesses will also threaten the cash flow and property occupancy over time. Create a business plan for the property to address the known and upcoming weaknesses.
Tenant mix – review the tenancy mix as you inspect the property. Understand the tenants that are trading well and those that are struggling. Identify the tenants that may be under some form of pressure and develop a base plan as to how you may manage that occupancy and improve the overall results. It is a good idea to incorporate a tenant retention plan into the property performance strategy.
Time based comparisons and assessments – when you first take on the property under management, it is likely to be a busy period of time for the first few months as you work through leases, tenants, and maintenance issues. The question to consider here will be how you can get the property under control effectively and efficiently. Some properties can take months to reshape and control. If you are about to commence management of that type and intensity, be very careful as to how you set your fees for service.
Income and expenditure review – the history of the property can tell you something about financial management and cash flow. Understand how the income has been changing over time and if there are any weaknesses in market rental currently. Rental and income weaknesses need to be identified and addressed quickly and efficiently. Comparisons to the prevailing market conditions will be required, and negotiations will need to be commenced as soon as possible. Seek your landlord instructions and comments as part of an income review and opportunity assessment. Know all the facts. Also review the expenditure within the property and the history of net income. Has the property being improving through good financial management or are their hurdles to address? Are there issues or weaknesses of current and future income, and will there be expenditure volatility to be dealt with?
So there are many things to look at when it comes to pricing your commercial property management services. Understand the client, the property, and the tenancy mix before you set the final fees and commence your professional services. Build your brokerage portfolio with care.
Every commercial property vacancy is an advantage to be seized. The landlord is likely to be moving through some challenges of rents, occupancy and tenant mix. You can do something to help, particularly if you know something about rents, lease enquiry, and tenant placement.
In this audio I talk about the things that you can do with property leasing. Be versatile with the services that you provide and look at the vacancies locally in your town or city for a business opportunity.
In undertaking a retail shopping center survey, the questions that you ask will impact the results that you seek. Always plan the process. Understand the retail property for what it is, where it is located, and what you are trying to achieve.
Understand the property, the location, the customers, and the tenants as part of designing and implementing a retail shopping survey. You will then have some meaningful retail information to work with. You will then have something to work with as you improve the property over time.
So let’s look at how you can set up the key factors of information in the retail survey. Here are some of the most important questions to explore as part of undertaking the survey:
Where are the people (shoppers) coming from? – You will need to know where the shoppers are based. Are they local people? Are they visitors to the property or the area? Are they workers in the location?
What stores do they like to visit? – Some stores will be more popular than others. Your key retailers will be valuable to the factors that you structure into your marketing campaign.
How often do they visit the property and why? – Understand how often people come back to the property to shop and seek out their goods and services.
What days of the week would they visit? – Some days of the week will be busier than others from a shopping perspective.
What are their favorite shops? – Certain retail shops will stand out as ‘draw cards’ for the overall tenant mix and property.
What type of customer are they? – Customers can be groups into segments such as ‘young families’, ‘empty nesters’, or ‘retired’. You will soon understand why people come back to your property and who they are.
Are Vacancies impacting shopper expectations? – Be very careful with a retail property that contains reasonable levels of vacancies. Those empty shops or vacancies will impact customer expectations and shopping patterns.
What age group are they in? – Age is very relevant in positioning a retail property and the marketing associated with it.
In commercial real estate leasing today, the first tenant that you find to fill a vacancy in a property may not be the best tenant for the investment over the long term.
Ultimately you need to consider first and foremost the future of the property, the improvements within the asset, and the investment targets of the client. You can then choose the best tenant by type and market the property accordingly.
The marketing strategy behind the leasing requirement will allow you to drill down into the factors of attraction that apply to the vacancy. You want to attract the best tenants for the location.
So you will need some information to assess about the property, the client, and the local area. The depth and the strength of your research will help you match your services to the requirements of the client and the property
Before you lease the property and the vacancy understand the client first and foremost. The client as the landlord owning the property will have certain targets to recognize including the following:
How long do they wish to hold the asset?
What are the requirements of cash flow from the lease?
Are there other tenants within the property to support the rental return?
In any medium to large property, you will need to review the lease expiry dates, rental structures, and occupancy pressures before you lease any vacancy to a new tenant.
Are there factors of renovation that need to be incorporated into the tenant mix and the lease structure?
Are there factors of risk that need to be incorporated into the property performance plan and the overall leasing strategy?
Has the client diversified their property portfolio across a number of different locations? Diversity brings with it other strategic factors to consider.
In answering all of these questions, you will have a reasonable idea of the best tenant by type and by location. Understand how the tenant will fit into the tenancy mix to strengthen the overall property profile and income return.
Subject to all of the previous questions raised, you can drill down into the best types of tenants that suit the asset and the investment targets of the client. A good tenant for an investment property will usually bring the following factors to the asset:
Stability – Every tenant should be assessed for stability before you commit to lease negotiations. You will need to review their business history, other locations of occupancy, and talk to the key people.
Income – Look at the levels of rental that apply in the local area. Will you be leasing the property on a gross or a net rental basis? What are the market rentals that apply respectively? How can you improve the income over time through rent review structures and strategies? How long should the lease be? All of these questions will impact the income for the asset. Answer the questions before you negotiate with the tenant.
Profile – Some tenants will bring with them a business profile that is attractive to the property. A business brand or a business profile can bring a marketing advantage to the property. Some franchise brands also achieve the same enhancement.
Taking these three elements into account you can do something with your lease negotiation. You can give the landlord some solid reasons to negotiate effectively and directly with the chosen tenant. Most landlords will cooperate when it comes to attracting a new tenant in a stable and strong lease arrangement.
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.
Like it or not some commercial investment buildings will age and factors of change consequently occur in property appearance and performance. When that happens, tenants are commonly attracted to newer properties in the same location. Landlords can be under threat of a declining tenant mix and marketing rental.
Local property developers
It is a fact that property developers for any new project are likely to be offering incentives and relocation strategies to pull across tenants and businesses to boost their project cash flow and occupancy. If you are a leasing expert or property manager for your location, you will need some real strategies to underpin property performance for your clients.
Maintain the mix and the rent cash flow
As any investment property ages, a renovation strategy is a wise solution to maintain tenant occupancy and net income. Such a plan should be incorporated into the annual business strategy for the property and the associated capital works programme. The leasing and or property manager for the asset should be part of that assessment process.
Property performance strategies
So the message here is quite clear for any property owner and or property manager. To sustain reasonable levels of property performance within any investment building, a real initiative needs to apply when it comes to property upkeep and occupancy.
There is a balance to consider here between the incomes achieved or achievable for the property, the regular maintenance required within the asset, the prevailing market conditions, the cash flow requirements of the landlord, and the demands of the occupants. Are you ready to balance the equation?
Why does this happen?
It is worth understanding why these problems evolve and then taking action accordingly. Some of the older investment buildings struggle for a number of reasons such as:
POOR SPENDING: Insufficient spending on property upkeep over a period of time can be a real challenge. Some landlords are too tight when it comes to property cash flow and maintenance costs. They hold back on discretionary issues relating to maintenance. Over time the property then degrades and the visual appearance suffers. As tenancies move towards lease expiry, they are quite likely to reconsider occupancy costs, and look after moving into other more modern assets locally. Protect your tenancy mix and lease income. Understand what the tenants require to run a successful business. Understand the needs that they have when it comes to staff, customers, occupancy, and business activities.
LACK OF MAINTENANCE: Poor quality maintenance routines and poorly selected contractors are an all too common problem. Building design and layout will dictate particular standards of property maintenance and upkeep. The plant and equipment will also have maintenance upkeep requirements. Establish a routine of property maintenance review and risk controls. On a quarterly basis assess property performance and degradation. The larger remediation items of a capital expenditure nature can be programmed into the property cash flow and budget process. If
NEWER COMPETITION: An abundance of newer properties coming into the market can change future supply and demand; the older properties are likely to suffer. Property developers will always study market conditions and the opportunities for a new project. They will predict occupancy into the future.
All of these issues are simply structured around asset positioning. If you are working with the property owner in a regular and ongoing way, and you understand the opportunities within the property tenancy mix, you can make the right choices when it comes to property rehabilitation and upkeep.
When you optimise the net rental income and the tenancy mix, monies are usually available to sustain property presentation and maintenance. It is a fine balance but it does work. Get involved with the assets that you lease and manage.
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.
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?
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.
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.
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Leasing is a lucrative part of the commercial real estate brokerage market. There are always vacant premises to lease and landlords to serve. The leasing agent with the largest database of tenants will usually make more in commission income than those agents that do not have a good database.
It should always be remembered that a good lease opportunity today that is converted to a successful transaction will quite likely move towards a sale opportunity in the future. It stands to reason that your personal leasing services and specialisation will help you with growing market share in a number of different ways. When you get to know a number of landlords, you build the levels of trust and the key relationships that are required for sales opportunity.
The fees for leasing a vacant property or tenancy will reflect the size and the quality of the premises. On that basis you should concentrate your leasing efforts on the better properties and the larger tenancies. In that way you will achieve better inbound enquiries and inspection conversions. Low quality listings are just as much work if not more than the better quality properties.
In considering the commission and fee opportunities from a landlord or a property, understand the following factors:
Lease rent review fees
Lease renewal opportunities
Assignment and subletting requirements
Vacancy management and leasing
Tenant mix advice
Lease renegotiation as part of a refurbishment
Franchise leasing opportunities
Tenant advocacy work
So there are a good number of ways for leasing brokers to attract fee opportunities from professional leasing services. Local area specialisation and leasing knowledge will help you achieve the momentum required. I go back to the point that the size of your database will be critical to the market activity and commissions that you generate. As a leasing specialist, you do need to know a lot of tenants and a good number of high quality landlords. That is where your database will help you greatly. Every day it needs to be nurtured and grown through ongoing contact.
So let’s look at some strategies and that you can implement in your professional leasing services. Here are some of the important things to understand and implement. You can add to this list other factors relating to location and property type:
Review the history of the area as it relates to business change and opportunity. There will be certain properties and locations that are more popular than others. Understand the locations that will create the best levels of interest when it comes to property occupancy.
Check out the market rentals that apply to your property type. Give due regard to the variables across suburbs, towns, and cities. Those market rentals will vary greatly and have a lot to do with property condition, ease of access, services, and improvements.
Lease incentives will vary subject to the factors of supply and demand for lettable space. Watch the number of new property developments coming into the area that could change the balance of occupancy. They will also have an impact on incentive size and availability.
With this basic information, you can focus your efforts when it comes to property leasing opportunities. Every day you should take further steps into building strong tenant and landlord relationships.
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.
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.
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.
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.
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.
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?
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.
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.
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.