Tenant Management Tips for Commercial Property

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When you lease and manage commercial property today, you really do need to monitor the activities of tenants within the tenancy mix and be ready to respond to occupancy issues.  Be aware of the changes within the building and the activities of tenants in each of the separate premises.

(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)

Why worry about this?

It is better to be ahead of the tenancy problems before they become overly large or pressured, thereby impacting the landlord and the asset.  It is better to negotiate with the tenant through their trading or occupancy issue at the earliest stages.

  • Protect the tenant mix, lower the vacancy factors in your asset, and keep your good tenants for the long term.

Most buildings today with multiple tenants in occupation will have some form of tenant retention plan to consolidate occupancy and cash flow over the foreseeable future.  Within that document will be the necessary lease strategies, rental indicators, and tenant profiles.

So what is it?

It is a landlord based investment planner to help with occupancy planning.   Shopping centres and large office towers would have such tenant planning processes in place, and then they adjust the plan every year based on what can be observed and predicted in tenant occupation and known vacancies.

Tenant retention planning?

So the retention plan is a document that allows you to prepare at the earliest stages for the worst and best possible leasing scenarios, and control the best outcomes.  In other words, you can stay well ahead of the leasing and tenant mix problems before they get out of hand.  Isn’t that what the leasing strategies should be in any investment property?

 

  • Look for the indicators and the pressure points of occupancy.  Given the pressures of the economy and business today, tenants can sometimes suffer with pressures of cash flow emanating from variations of staff structure, seasonal sales, production, and intellectual property.

 

So what can you do here?

On a regular basis look at how the tenant and their business appears to be tracking, and wherever possible identify any weaknesses that could impact occupancy.  In simple terms, you stay close to the tenant in every way possible through a series of telephone calls, meetings, and email exchanges.  You take plenty of notes, and you negotiate through any issues as early as possible.

Here are some ideas to help you with that lease management strategy:

  • Inspect the property and the tenancy frequently so that you can see when changes are underway.  Where necessary, take photographs and plenty of notes to support your observations.  You can see variations with staffing, management structures, production, on-site storage, and business activities.  Look for the indicators and asked plenty of questions.
  • Stay in contact with the decision makers of the business so that you can identify when they are under any particular pressure of occupancy.  In any corporate structure there will be different levels of management to interact with.  Take notes and make observations when it comes to any meetings with tenants and management personnel.  A simple thing evolving from a meeting today can be a major issue in the future.  Understand the impact of a shift in rental or tenant occupancy within the asset.
  • Watch for any shift or change relating to staffing and management within the tenant business.  Are they still employing the same number of people? Has the management structure changed within the business?  When you see changes, ask questions.
  • The lease document will be important when it comes to enforcing lease conditions and rental cash flow.  Review the lease regularly for the necessary critical dates and methods of response that apply to the occupancy process.

Given all of these things, the landlord needs to be fully briefed on any lease issues and recent tenant meetings.  Those facts can be merged into the end of month reporting for the property leasing and tenant management updates.

(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)

Shopping Center Management Strategies that Really Work

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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)

Commercial Real Estate Brokers – How to Solve Commercial Real Estate Vacancy Problems

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Vacant office space requires real strategy

 

Most commercial investment properties will have vacancy pressures to deal with from time to time. The larger the property, the greater the potential for vacancy issues to frustrate rental cash flow. If you are involved in the management or lease of any large investment properties, it is essential that you understand the intentions of sitting tenants when it comes to future occupancy.  The concept is called tenant retention.

Tenant Retention Plans

In an ideal world, vacancies should be resolved quickly and effectively for any landlords that you act for. The only way to achieve that level of control will be through a mix and match of the following strategies:

  1. Understanding the intentions of sitting tenants when it comes to lease expiry
  2. Monitoring the upcoming lease expiry dates approximately 18 months in advance
  3. Do a lease audit for all existing tenants
  4. Negotiating any lease expiry’s early so you can deal with the vacancy in a timely way
  5. Keeping in close contact with all of your sitting tenants within the tenancy mix so you know what they are thinking when it comes to occupancy
  6. Understanding the local business sentiment applies to rents, relocation, and property requirements
  7. Keeping in close contact with all local businesses to attract new tenants to your property when required
  8. Understanding the requirements of the landlord when it comes to market rental, cash flow, outgoings recovery’s, and lease documentation

 

Any leasing agent providing a specialised leasing service locally should satisfy and engage in all of these mentioned issues. All of these issues can be merged into a tenancy mix plan and a tenant retention plan for a major investment property. Large office buildings, and large retail shopping centres would be suitable for those control processes and plans.

To provide a top-quality leasing service, any vacancies currently or into the future should be controlled and filled. A top leasing agent will stay in contact with the landlord and all the tenants to ensure that vacancy downtime is minimised.

Any vacancy in an investment property can be a significant drain on cash flow over time. Not only is there a loss of rent, but the outgoings for the vacancy will become a landlord cost and therefore not recovered. Any property with a high vacancy factor will find it difficult to negotiate rent reviews and options with sitting tenants. Market rentals will also be hard to establish and maintain because of the high vacancy factor.

If you are involved in the management and leasing of any complex property with multiple tenants, it is essential that you track and control vacancies as they apply to the tenancy mix. Work well in advance to negotiate existing lease options, minimise vacancies, and attract new tenants that could be thinking about coming to the property.  Why is your property more attractive than others in the area to tenants?  When you know the answer, you have the basis of your lease marketing campaign.

Time Management Tips for Retail Shopping Center Managers

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Get your team organised.

To manage a shopping centre effectively and efficiently, the shopping centre manager needs to be knowledgeable but also time efficient. There are many pressures to balance as part of the property management process.

In an average working day, the following activities are some of the big items that will usually require attention on the part of the manager:

  • Collection of rental relative to the leases
  • Connecting with tenants regards day to day matters
  • Ensuring that the customers to the property receive the correct services and experiences
  • Marketing vacant tenancies within the property
  • Staying on top of the critical dates relative to the tenancy schedule and the existing leases.
  • Maintaining the property physically as to maintenance and essential services.
  • Balancing the tenancy mix with an affective a business plan and tenant retention plan
  • Reporting to the landlord on a regular basis regards income activity, expenditure activity, and rental arrears.
  • Marketing the property from a customer trade perspective to improve sales across the tenancy mix
  • Finding new tenants for the property based on the requirements of the mix and the upcoming vacancies.

So there are many things to do when it comes to managing a retail property. The larger the property, the more challenging the workload and the diversity.

It should be said that the larger shopping centres will usually have a team of people splitting the key issues of the property into different disciplines. When that happens, the cost of the staffing structure will be built back into the recoverable expenses for the property. It is quite normal for the centre management cost structure to be a recoverable item within the lease documentation.

So here are some strategies to help Retail Property managers stay on top of the workload and the challenges of the job.

  1. Create check-lists for processes. You can have check-lists across leasing, maintenance, reporting, tenant mix, tenant contact, budgeting, and landlord contact. The same process can apply when it comes to property handover.
  2. Start the day early, and get the difficult documentation and paperwork out of the way. The first 3 hours a day should be devoted to paperwork and processes.
  3. Where ever possible, delegate key tasks to members of your team. A successful retail property will be built around the strengths of the team, and the professionalism of communication.
  4. Document everything when it comes to tenant and landlord contact. Over time the notes and the event recording processes will support you in the case of any litigation or negotiation.
  5. At the beginning of the week, hold a team meeting where you can cross reference critical issues across the property, within the tenancy mix, and with the landlord. Create an agenda for the process, so that you can stay on track with critical issues. Follow things through where complex issues apply or negotiations are continuing.
  6. The income and expenditure activities within the property will be important in many different ways. Tenant occupancy, lease structures, and critical dates will all have an impact on cash flow. Understand all of those factors as part of providing a top service to your clients. Stay ahead of the critical dates and be prepared for the negotiations that follow.

A successful retail property is one that is managed effectively, efficiently, and correctly. Give due regard to occupant and customer safety, as well as the rules and regulations that apply to building codes and essential services.

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How to Lease a Commercial Property Today

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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.