Things to Look at When Leasing Commercial Property

If you are a landlord in Brisbane and wanting to lease a property to a new tenant today, it pays to fully understand the leasing and vacancy competition that you are up against.  Let’s face it, tenants are looking around at everything that is available, and they are more selective in making a final decision. They generally know what the rents are doing, they know what their cost limitations are, and they can generally ‘shop around’ for the ideal vacant premises.

What’s Your Leasing Focus?

So, what are your priorities in leasing premises? What do you prefer out of the following?

  • A tenant leasing space?
  • A high rental?

It is sometimes difficult to achieve both points of focus in the one leasing transaction. A good lease with a new tenant should be a priority. A ‘fair’ rent is the best way to attract a lease and tenant arrangement. The escalation of rent over time can then be improved by a rent review strategy.

city hi rise building
Understand the leasing market in commercial real estate in your location.

Today’s property and leasing market in Brisbane provides a broad selection of vacant space to the active tenants in most locations.  The vacancy rates in the local property precinct can make your selection of rental a key part of the leasing process.  Add to this some other leasing decisions such as:

  • Lease term
  • Option availability
  • Base rental
  • Rent reviews
  • Rental type (gross or net rent)
  • Outgoings recovery

Expert leasing advice is critical here.  Leasing a vacant tenancy is not just a simple decision.  We guide our clients through some key decisions like those above so that the best lease can be created given all other property factors and pressures in the local area.  Timeliness is important in getting a property leased today.

What Tenants Do You Want?

As a property owner and investor, you will sometimes be actively seeking a new tenant to fill a vacancy in your property.  The best way to market the vacancy is through the dedicated efforts of an experienced real estate agent that is working for you on an exclusive agency basis for a period of 3 or 4 months; that is generally how long it takes to tap into the target market for the property and find the right tenant. 

The exclusive agency method gets the agents full focused efforts during the time that the listing is promoted.  If the property has not leased by the end of that time then something is frustrating the leasing process (such as high rents, poor quality premises, abundance of lettable space available or poor location)

Let’s say your marketing of the property has just commenced.  The adverts are on the internet and you have a signboard on the property.  Enquiry is good and inspections are occurring.   So along comes a new tenant; and then another and yet another.  All of a sudden you have 3 tenants all looking at the premises and soon the offers come in.  So the question is just who do you choose as your tenant to take the premises and why?

The issues involved in leasing decisions are complex and involve many long term issues.  The reality is that the best tenant is not always the one that is paying the highest rent; it is the one that is producing the best cash flow over the lease term (plus other things).  To analyse that fact you can do a net present value (NPV) analysis of the passing income from the lease taking into account the key factors from the lease over its duration such as:

  • Start rent
  • Lease term
  • Rent review methods and timing
  • Value of incentive provided
  • Cost of money (%) over the term

That will give you a better reason to select one tenant over another.  Interestingly the tenant with the highest NPV will not always be the one with the highest start rent.  It is the long term package and rent review structure that matters and you will see that in the NPV number calculated.

How to Find Tenants Faster in Commercial Investment Property

shopping mall and retail shops

When your property becomes vacant it can be a real worry.  It is the same for any landlord in Brisbane and in greater Queensland.  As the online pressures shift and change, the way companies transact business today has a direct impact on property occupancy, be that in leasing or ownership.

Why is that?  Companies today are more ‘mobile’ and the sales force can spend most of their time out of the office.  Everything that they need to create new business, or place and order is typically in the ‘cloud’.  The size of average office premises for a given today is smaller than what it would have been five years ago.

So, that then presents some problems. In precincts and property locations it can take some time to find a new and willing tenant that has the integrity and business stability to occupy a property.  That leasing process means loss of rent, loss of outgoings recovery, incentive costs, legal documentation costs, commissions in leasing, and the list goes on.  

Market Coverage is Important

A good commercial real estate leasing agent that has a solid coverage of the local property market can be of great value to a landlord today.

So, what can you do as a landlord with your investment properties?  You must stay ahead of the vacancy problem and have a good strategy in place to minimise the vacancy downtime. 

Even in tough markets, vacant tenancies do lease, it’s just that it takes more time and effort on the part of the agent and or the landlord to promote and target the property to the right prospective tenants.

Retail Shopping Mall and tenancies
Retail shopping mall and tenancies have an occupancy focus.

A ‘tenant retention plan’ is a good solution for most investment properties.  In a ‘retention plan’, specific strategies are created such as:

  • Closer connections with existing tenants to ensure full awareness of leasing pressures and business changes.
  • Creative lease transactions that are designed to match the overall mix of the property whilst avoiding mass or multiple expiry problems with several tenants or premises at the same time.
  • Targeted tenant profiles of local businesses to simplify the leasing process when a vacancy is known to be happening or upcoming.
  • Direct marketing of vacant space early, so that enquiry is optimized for vacancies at the right time.
  • Incentive packages that are structured to encourage existing tenants to stay in a property.  There are different incentives available, and a package or alternative packages can be created to suit investment targets in the property.
  • A forward matrix assessment of all tenants in an investment property to allow lease expiry awareness and early negotiation.  That matrix is typically a forward-looking assessment of occupancy looking out to 18 months from current time.
  • Leases that are matched to the investment targets of the landlord and the valuation requirements of the property financiers.

As a landlord, and if you have premises to lease, do not make your choice of leasing agent based on discounted commissions, lower fees, low marketing costs, open listing, or friendship.  None of these things will really help you lease your vacant tenancy any faster.  The result is an expensive and protracted vacant tenancy that is ‘eating its head off’ financially in vacancy downtime and costs.  Your losses will far exceed any gains you think you may get from savings on commissions or fees.

What are the Property Strategies?

When you need an experienced real estate agent to help you lease a retail or commercial property, or any property for that matter, ask them to give you their strategy on:

  1. Advertising to a target market that is relevant to the vacant property
  2. Internet listing initiatives to attract more enquiry
  3. Track record leasing similar local property
  4. Lease terms and conditions that attract tenant enquiry
  5. Database email circulation of your vacant property for lease
  6. Cold calling the business community to attract enquiry from the right business owners
  7. Street by street canvassing of businesses for greater information about your vacant tenancy
  8. Signage initiatives that show the vacancy to its true advantage
  9. Target marketing the property locally
  10. Inspection strategies designed for your property

Such a short list and some yet critical points that are so important when you are leasing property or seeking to resolve vacancies.  You can do so much with these things from a leasing perspective providing your commercial real estate agent supports the process and provides the depth of experience to get the job done.

City Buildings
Know the Brisbane Property Market

One final comment and going back to one key point above; open type listings in a tough market are also a waste of time for the average landlord.  The numerous agents that have your property listed as part of an ‘open listing’ are not really marketing your property intensely.  It is what is called a ‘list and hope’ process when it comes to open listings.

Proven Agent Performance

If you want to lease your property in the shortest possible time, find an agent that has real proven experience in the local area using the 8 points above.  Ask questions about what the agent will do for you.  Get them to show you how they will attract the market to your property.  Make them win your business.  Good real estate agents will do this and give you the confidence you expect as a property investor.

I go back to the point that leasing a commercial or retail property is not about getting discounts from the chosen agent.  It is all about market coverage and strategic approaches to the right local businesses.  A timely lease agreement is more important than any ‘discount’.

Retail Tenant Contact Cycles for Better Investment Property Performance

retail shopping mall escalators

When you own a commercial or retail property, it pays to keep in close contact with your tenants.  They are a key part of the property performance and should be nurtured to stabilise income from the property. 

Build a tenant retention plan to boost your tenant stability.  Have reasons to talk to your tenants and do so frequently.  Build positive and strong relationships with your tenants.

As part of keeping in contact with the tenants in your property, you can create a tenant contact plan that formalises the meeting and any feedback that may happen as a direct result. 

Highly Performing Properties

Many larger landlords in high performing properties will create and hold tenant contact meetings with all tenants at least every 90 days.  In retail property this cycle is shorter given that a retail property is a very active type of property investment and changes happen all too quickly with property pressures and retail sales.

So just what can and should you talk to your tenants about?  Try this list:

  • Need to expand premises
  • Need to contract premises
  • Maintenance needs in the property
  • Interaction with other tenants in the same building
  • Exercise of lease option
  • Use of the building
  • End of lease issues
  • Renovation or refurbishment plans
  • Insurance
  • Terms and conditions of their lease and compliance to that

It is interesting to note that good tenants are constantly being networked by other property owners and real estate agents in your local area.  More reason to keep in contact with your own tenants to make sure they are happy in occupancy.