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.