A vacant commercial property is a significant frustration for an investor. They are loosing out on rents and outgoings recovery. Over time that can all add up to a large amount of money and financial discomfort. Look at vacancies for the opportunities that they are for you in leasing brokerage.
In commercial property management and leasing, you have to closely watch the tenant mix and the leases for any upcoming vacancy risk and or tenant in distress. The property market changes all the time, and each city will have unique pressures that can set the momentum to move tenants around and impact business performance.
So what is happening locally for you in your location? Do you have clients and properties under vacancy pressure? It’s an opportunity to resolve. You really do need to know why vacancies are happening and then work on a strategy to resolve them.
Before I go too far into this concept, I will say that the leasing market is lucrative from a commission perspective, if you focus on one or all of the following:
Quality properties – some properties are better than others. Look for the differences in local properties and buildings in your location. Choose the better properties from a leasing perspective.
Larger tenancies – the size of the tenancy will dictate more rental and therefore more fees per transaction.
Corporate tenants – the companies and corporations in any town or city tend to need property help in relocating and expanding or contracting. You can have an appointment to locate their next property lease.
Particular property types – when you look at the rents per unit of area per property type, you will soon see the property types that create better interest from tenants and better rents. That is where you should focus your leasing efforts.
Given these 4 facts, you now know what types of leasing factors should feature in your prospecting model. Take deliberate care to stay within your set leasing criteria. You will then find the tenants and the better properties.
What value do you bring?
So why are vacancies happening in any building or location, and how can you help? To get to the answers, you really do need to look into the following factors and do the appropriate assessments:
Rental pressures and shifts – rents that are consistently climbing will reach a plateau where business owners will resist leasing. In a city where rents are escalating, understand the realities of a business paying higher occupancy costs. What are the limits?
Competing properties – other properties locally are likely to be competing for your tenants so watch the problem and intervene where necessary.
Occupancy costs – rent and outgoings all add to the cost of occupancy; a tenant has to be able to afford the total occupancy package.
Tenant mix problems – some tenants have issues with being close to others and other business types; look for those problems.
Permitted use or exclusivity – in a larger building where you have multiple tenants, ensure the balance of tenant mix, and avoid giving away exclusivity (retail properties in particular).
New properties being developed – any new property will shift the balance of supply and demand, thereby pushing businesses out into the leasing market.
Landlord issues – some landlords are very difficult to work with, and will give tenants a good degree of frustration as part of lease negotiation and occupancy.
Quality of services, amenities and improvements – buildings age as do the services and improvements.
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:
Understanding the intentions of sitting tenants when it comes to lease expiry
Monitoring the upcoming lease expiry dates approximately 18 months in advance
Negotiating any lease expiry’s early so you can deal with the vacancy in a timely way
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
Understanding the local business sentiment applies to rents, relocation, and property requirements
Keeping in close contact with all local businesses to attract new tenants to your property when required
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.