Find good tenants and keep them. Keep your property occupied at all costs in this commercial investment property market. In this economy there is a fine balance between the rent that the landlord wants and the rent the tenant is prepared to pay. Vacant tenancies should be avoided at all costs. Factor Investing The pain of a vacancy is huge for a landlord when compared to the small pain of a lower starting rent for a new tenant. Negotiate through rental disputes and differences so that occupancy is maintained and optimized.
It does not really matter what the rent is today at the beginning of a lease, as a good lease rent review profile will lift the rent over time. As long as the landlord is holding the property for the known future then today’s rent will improve.
Today’s rent only matters when the property is about to be sold or refinanced. The sale of a commercial or retail property is a strategic matter and should only happen to a plan. The plan includes:
Low or nil vacancies
Controlled or below average outgoings costs to run the property
Well documented leases that have time to run before expiration
Happy tenants that support the landlords control of the property
Leases that give growth to the cash flow without threatening tenant viability
A well performing property maintenance program that shows the property in its best light
Low impact from competing properties
Growth in the local community
A property in the peak or prime of lifecycle
Check for impact or enhancement of redevelopment opportunities
Vacancies will cost you or the landlord money and lots of it. Realize the total economic impact of having to re-lease the vacant space. If you have good tenants, you should do everything within reason to keep them. Consider the effect to the landlord should one of your tenants go out of business or leave the property:
Can you find a replacement tenant and If so, how long will it take?
Will you be able to achieve anywhere close to similar rental from a new tenant given the current market conditions?
Will you have to give large incentives as the landlord to re-let the premises?
What will legal fees cost you in creating a new lease?
What will leasing commissions for a new tenant cost you with the local property agents?
What will tenant improvements cost the landlord? Who will own those new improvements once the money is spent?
How will a vacancy impact on the surrounding tenants and the tenancy mix for the property?
These are simple interesting questions that all create costs for the landlord. Go back to the statement earlier; it does not really matter what rent the new lease starts at, but rather where the new lease will take the landlord’s rent over the coming years. Leasing investment property is strategic over time.
John Highman is an expert in investment real estate strategy and performance. He is a keynote speaker and coach that helps property investors, and real estate agents globally to improve their commercial real estate property opportunities and targets.
John has specialised in major commercial, industrial, and retail property for over 30 years. He knows what works and what doesn’t. He gives you the ‘good oil’ on getting active and achieving results.