What to Look For in Commercial and Retail Leases

shopping centre mall foyer

Property owners that lease commercial property to tenants should keep a close eye on the terms and conditions of their leases.  It is all too common that a critical date or situation is overlooked in a lease and the landlord or property manager has to chase down and remedy the matter. 

The key secret to keeping a commercial property on track is in understanding the leases and thoroughly actioning any date critical terms and conditions.

city building high rise
Look at Your Investment Property Comprehensively

There are many things to look for but here are some of the main ones to monitor:

  1. Rent review dates
  2. Option to renew dates
  3. Lease expiry dates
  4. Renovation date requirements
  5. Insurance certificate of currency evidence
  6. Charges for outgoings
  7. Reconciliation of outgoings
  8. Payments of sundry charges under the lease
  9. Rent payment provisions
  10. Turnover reporting to the landlord
  11. First right of refusal provisions

The list can go on, but importantly the critical dates in a lease are handled and controlled.  In this way the property can be optimised for the landlord and the tenant.

When it comes to marketing and selling your property, the time you spend on tracking and checking critical dates is invaluable in the long term.

Contact Systems for Commercial Real Estate Tenants

tops of city buildings

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.

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.  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.

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.  All the more reason to keep in contact with your own tenants to make sure they are happy in occupancy.

Why Commercial Property Leases are So Important in Investment Performance

When you own commercial property or retail property, the leases that reflect the tenancy mix are the foundation of the cash flow.  Then when it comes to selling that property it is the leases that will drive buyer interest and ultimately assist in getting a better price for the property. 

A property with a good lease profile will create property investor interest; it’s that simple.  It then stands to reason that the lease negotiations that occur in your property should be carefully planned and optimised with the ‘end result’ in mind.  You never know when you want to sell or refinance your property.  The leases will be the attraction to support your processes and needs.

It can also be said that not all tenants are equal when it comes to investment performance. Ultimately you would want a mix of tenants that are not too ‘volatile’ in the daily events and operations of the property.

So, What Are Your Investment Systems?

So what can you do here as a property investor?  Take a look at all your leases and the broader tenant mix.  If you own a shopping centre or a large office tower with many tenants, think about creating a list of tenants and splitting them up into priorities and retention groups. It stands to reason that you may want to keep some of your tenants more than others. What can you do to negotiate leases with your ‘desireable tenants?’ Try a tenant retention plan for starters. That strategy should feature in your investment or property business plan. Understand the deals that you are prepared to do with your better tenants. That will include incentives, rents, and lease terms.

Set some rules and standards about these things below and then see a good solicitor to help you with the lease creation:

  • Rentals
  • Rent review timings and standards
  • Option terms
  • Make good provisions
  • Lease terms and conditions
  • Ideal tenant type and operations

When you make every lease count, the property starts to take on a whole new level of performance.

Why Commercial or Retail Property is a Good Investment Vehicle in Queensland

city buildings at night

Its times like this that we can easily see the benefits of investing long term in Brisbane property and particularly commercial and retail property.  On average, investors keep the commercial property for about 5 to 7 years; sometimes longer.  After that, they know what they can do with it when it comes to diversity, enhancement, or repositioning.  That is where investment strategies can bring value to a property or property portfolio

Investment changes can be in buying more properties, and or to sell, develop, or refurbish.  Some property owners use the capital gain from their investments over time to refinance or improve their portfolio.  Commercial and retail property is interesting and sometime challenging.  It is supported by business sentiment and local area demographics.

building facade
Quality property assets are always of interest.

Investment Strengths and Weaknesses

Certainly, mistakes are made by some investors (as in all investments) but the retail and commercial property market remains a solid investment vehicle over time for many astute investors.  Why is that? It is not hard to understand; it just takes a bit of knowledge and ongoing market research.  The returns from commercial and retail property are generally better than residential property over time although the higher cost of the asset class can delay some people from entering the market.

Know Your Location and Property Types

What can you do with this in Queensland?  Do your research into the property types and see what appeals to your plans.  Find a good real estate agent that knows the location, the property types, rents, prices, and the changes of activity in a location.  Here is a checklist to help you do that:

  • What property types do you know something about?
  • Can you focus on quality investment property in your location?
  • Have you visited your bank or financier to assess your lending position?
  • Can you hold your assets for the longer term or are you a short-term holder?

If you need help with any of these concepts in Brisbane or Queensland, contact Specialist Commercial Agent, John Highman on 0417221108

How to Make Every Lease Count in Investment Property in Brisbane

money on table

When you own commercial property or retail property in Brisbane or Queensland, the leases that reflect the tenancy mix are the foundation of the cash flow.  In many respects it is the cash flow that attracts other investors to the property when a sale is forecast.

Then when it comes to selling that property it is the leases and the cash flow that will drive buyer interest and ultimately assist in getting a better price for the property.  So, the best idea is to negotiate your leases carefully with due regard to the future of the property and your investment targets.  Ask plenty of questions.

city building high rise
Look at Your Investment Property Comprehensively

What About the Tenants?

Another thing to remember here is that not all tenants are good tenants.  You must look at a tenant comprehensively before the lease transaction is accepted.  The things to review with a tenant occupancy include:

  • Where they are coming from
  • Lease history from other locations
  • Landlord comment from other locations
  • The tenant’s ability to pay the rent for the long term
  • The existing cash flow from the property
  • The incentive that the tenant is looking for

A property with a good lease profile will create property investor interest; it’s that simple.  It then stands to reason that the lease negotiations that occur in your property should be carefully planned and optimised.  You never know when you want to sell or refinance your property.  The leases that you have in existence will be the attraction to support your marketing processes and investment needs.

building entranceway
Attract your tenants to your property with optimized leases.

Look at the Leases and the Overall Tenant Mix

So, what can you do here as a property investor?  Look at all your leases and the broader tenant mix.  Set some rules and standards about these things below and then see a good solicitor to help you with the lease creation:

  • Rentals
  • Rent review timings and standards
  • Option terms
  • Make good provisions
  • Lease terms and conditions
  • Ideal tenant type and operations

When you make every lease count, the property starts to take on a whole new level of performance in its asset class.

The Advantage of a High Quality Lease in an Investment Property

retail shopping mall

So many landlords today in Brisbane and in Queensland negotiate a lease agreement with a tenant and do not think deeply about the elements of any lease to be created.  They just leave the lease to their property solicitor to formulate. 

Certainly solicitors know what to do in creating a lease, it’s just that they do not always know much about the property in question.  More often than not, the solicitors working on the lease documentation will have not seen the property at all.  That then leaves the opportunity wide open for a lease document to be prepared that does not specifically match the uniqueness of the property.

woman checking fruit in shop

Retail Properties are Different

When leasing office or industrial property the terms of a lease can be fairly standard, but when it comes to retail property the lease should be specially structured for the investment plans of the landlord and the function of the property. 

Retail property is very much a vibrant and active type of investment.  Things can happen at any time involving tenants, landlord, or customers.  That is where a good property solicitor will review the lease, match it to the needs of the property, and then balance that with the investment plans of the landlord.  Proof of this fact is that most large properties will have a special lease formulated by the solicitor acting on behalf of the landlord.

How to Watch the Commercial Property Market for Opportunities

city buildings on skyline

At times like this there are significant changes going on in the commercial property market in Brisbane, and many opportunities around.  If you have spare funds available to put into the purchase of a new commercial property, there is no doubt that good opportunities exist.  It’s a matter of what you are looking for and how much you can spend.

There is a balance being reached between sale and purchase; it’s a process of cycle and value.  The buyers can be selective, the sellers must be realistic on price outcomes, and the available funds to transact a sale are less available than say 2 years ago. The banks and finance groups are more selective on loads and loan qualification.  First time buyers of commercial property need to provide a good financial history and a strong net worth position that underpins the loan position.

What is a Property Cycle in Commercial?

This is a property cycle and we have seen it before; after years of high demand and high prices, the values reach a level where buyers are more selective and slower to react.  In saying that, a quality property will always attract attention; it is just a matter of what price can be achieved.

So many people have said that ‘timing is everything’ when it comes to property investment; today is a case in point.  Now is a good time to purchase given that some buyers are more restricted with funds access and may not be able to move on even the best of properties.  

Well positioned buyers and property investors are in one of the best of markets right now.  They can pick and choose the properties they like; they can strike a reasonable bargain without being too eager or pressured into a transaction.

woman using computer

Things to Look for in Investment Property

So, what should you look for in the property market and with commercial or retail properties?  Try some of these things to monitor in your preferred investment location and or property.  Properties with:

  1. Good tenant profiles and companies or tenants of substance
  2. Good tenant mix that balances customer interest and business sales
  3. Great location for ongoing business
  4. Solid lease documentation that supports the investment factors in the property
  5. Low threat of vacancy over the coming years
  6. A history of solid income growth and low risk of income loss in the future
  7. Good controls on expenditure and budgets to support that
  8. Long term anchor tenants of stability and popularity

So why would a property investor sell one of these great investments?  Simply because right now many property investors must sell; they must reposition their financing and larger portfolio.  This is a great opportunity for those that can buy commercial and retail property.  Timing is a good leveller for those that can wait for the cycle to come back.  Right now, it’s back; it’s a buyer’s cycle in commercial property.  It is a good time to invest in commercial and retail property right now and over the coming 12 months.