In this slower commercial property market, there is a lot of pain and discomfort being experienced by some of our commercial real estate clients and local property investors. That being said, we as the local agents and realtors are the ‘pain relief’ behind the equation. We can solve a lot of problems for our clients. We have the market processes and tools to do that.
Here are the typical frustrations of property investors in commercial and retail property today:
- Higher vacancy factors and selective tenants
- Protracted vacancy periods
- Poor tenants in the tenant mix and unstable market rents
- Less quality enquiry for a property that is taken to the market for sale or lease
- High property outgoings in maintaining the property for occupancy
- Extended time on market when it comes to selling or leasing a property
- Reduced price or rent outcomes from a contract or lease
- Difficulties with finance requirements and lenders
Rest assured that the property market does change and will get better. Remember that just 5 or 6 years ago we had just come through a huge boom period of commercial and retail property sales and leasing.
In these more challenging times, we as the local commercial agents and realtors are best placed to solve property problems for our clients. We have the tools and the ideas to move some of these challenging properties over a slump or hurdle.
Top agents can thrive in this market because they have the contacts and the database to do a lot of good things for their clients and property listings. When the market gets tougher, the top agents simply focus with more action and relevance; they know what is required to help their clients and they set about doing just that.
So here are some tips to work with focus in this property market today:
- Work with a focus on the local business community. They are likely to need property change or relocation. Some businesses will be more successful than others; sort through the local businesses to see who wants help with expansion, contraction, or relocation.
- Some local property investors will be needing help with tenant retention plans and occupancy changes. Your database of tenants will help them.
- Look at the older buildings that tenants are leaving. Those buildings may be a case for renovation or redevelopment.
- The methods of sale or lease in this market should be carefully considered with due regard for the property and the surrounding area. Exclusive listings for a lengthy period of time are the norm and not the exception.
- Vendor or client paid marketing should be obtained for every listing that is made exclusive.
- Take every listing into the local area personally to the business proprietors within regional proximity. A current listing is a reason to talk to others.
In this property market, we are the specialists that can solve many issues for our clients. It is just a matter of how that is to occur.
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When it comes to managing commercial and retail property, it is very important to optimise the income for the landlord. The income for the property should be looked at both individually with separate leases, and across the entire property and the tenancy mix.
At the beginning of every financial year, there should be some form of budget created for the tenancy mix and the potential property income. All of the leases currently existing will have rental strategies and rental increases to merge into the income budget. This income budget can be incorporated into the business plan for the property for the upcoming year. The best time to do the budget is in the months of April and May, just prior to the beginning of the financial year.
Here are some tips relating to income optimisation in commercial or retail property management:
- Always allow for some measure and method of adjustment given that the property market is always changing in your local area. When you set a property income budget, it should be reviewed on a monthly and quarterly basis. Any established trends in the local area should be tracked and then be used as a form of rental adjustment for the landlord if those trends are firm and established.
- The vacancy factor in your local area will change based on the supply and demand of available property. To monitor this process, you should track down the changes to the property development plan in the region. Look for any new developments that could have an impact on your property. Those new developments will have a timeline of construction and occupancy; it is likely that those developers will also have an allowance for rental incentive to attract tenants into their property. That incentive will have an impact on your property leasing strategies.
- Market rentals will change from time to time. They do not always go upwards, and more commonly will stagnate or slightly reduce when the property market slows. To help you with the levels of market rental, you will need to understand the impact of incentive in the market rental structure as it exists today. If an incentive exists in any market rental negotiation, it creates what is called a face rental. That face rental will be discounted by any property valuer back to a level that is truly aligned to the effective rental and the market. Incentives create a false level of rental.
- Business sentiment will change from time to time based on the local and regional economy. Some business segments and business types will be more active and successful than others. Track those business segments and monitor the needs for property change or occupancy. Some of those tenants could be relocated to your property if the opportunity arises.
- Existing tenants in the property should be categorised into long-term tenants and short-term occupants. Some tenants will be more attractive to the landlord and the performance of the property over time. They may have a tenancy profile or business identity that encourages other tenants to the property. Reviewing the tenancy mix is called tenant retention. You can create a tenant retention plan as part of your business planning model.
- Pressures of expansion and contraction will change from time to time with all other tenants in your tenancy mix. Look for those changes, and keep close to those issues through the business year to identify any pressures of change that may need to be accommodated in the building. It is better to have a tenant in your property that you understand and appreciate, than find a new one that is unproven and costly in occupancy changeover and leasing costs.
The income for a commercial or retail property can be enhanced when you fully understand all of the above factors and adjust the property accordingly. It is not unusual to adjust the business plan or for a property three or four times during the financial year.
If you would like to get more free tips on commercial property management you can get them at our website http://www.commercial-realestate-training.com/
In larger retail properties today, you need a quality anchor tenant that is location based. They have to be closely aligned to the local community and the demographics of the area. For this reason, leasing managers and property managers should select anchor tenants well and ensure that the anchor tenants will build a customer base into the local area without difficulty.
A strong anchor tenant will encourage more shoppers to a retail property and help the specialty tenants with their trade and sales. The link between the anchor tenant and the property is therefore high.
To help the anchor tenant with this close alliance with the property, consider the following factors:
- The anchor tenant should be encouraged to market their business into the local area. It is wise to have some guidelines established for that process to occur. The anchor tenant’s lease can set out some guidelines for that.
- The specialty tenants should join with the anchor tenant in a regular marketing effort to promote the property. The specialty tenants can have a clause in their lease that requires them to pay a percentage of their rent to the marketing fund of the property. The property manager should administer the marketing effort on behalf of the tenants and the landlord.
- The lease for the anchor tenant will need to be a lengthy period of time to give the property some stability over the long term.
- Look at how the access to the anchor tenancy is obtained by customers and how that access can incorporate involvement or profiling of the speciality tenants in the property. Follow the ‘foot traffic’ to see what marketing effort can be established in the ‘corridor’ or pathway to the anchor tenant entry.
- The pylon sign on the property will be critical to the image and exposure for all tenants. The anchor tenant will feature in the signage and then all specialty tenants should be on the same pylon sign. Look at the pylon sign placement to passing vehicle traffic and pedestrians.
- If the local area is serviced by public transport, get some marketing material and posters into the transport systems and drop off points.
- Understand just how tenants access the property and how long they stay in the property. What do they buy when they visit? These questions will help you understand what the tenant mix requires to strengthen trade for the anchor tenant and the specialty tenants.
- Get marketing brochures into the local community and give special attention to seasonal sales or celebrations. The community will get involved with your property if you create the right atmosphere.
There is a fine balance between the tenants in the property, the community, and the landlord. The property manager or leasing manager for the property has to bring all of that together.
Retail property performance is a fine balance of a number of relationships between the tenants, the landlord, and the community. When the balance is correctly established and maintained you can see the retail property and the tenants thrive.
In pressured times like that of today where retail trade is impacted by the internet and economic sentiment, the retail property manager has to be very close to a number of key issues in their managed property. In that way they can stave off many of the problems that can occur with the property over time.
Here are some factors to monitor and address:
- Tenants with lower levels of stock should be observed and questioned. The lower levels of stock may be the result of a recent stocktake sale, or they can be the result of a shift in sales results. You are looking for tenants that are not performing well in sales or that are changing their service or product offering to that which is not permitted under the terms of the lease.
- Changes to the staffing of tenancies and businesses will be an indicator. If the employees in the tenancy business are under constant change, it is wise to understand what is going on and why it is happening.
- Tenants that need to relocate should be worked with. If their business is under pressure, it is better to achieve a process of cooperation to help them in stabilising. Any alternative is likely to involve a protracted vacancy and that is not going to help anyone.
- Tenants that do not maintain presentation of premises or stock will drag down the other tenants in close proximity. Quality lighting and good levels of presentation are really important in retail property.
- Clustering advantages or pressures in a property can help you either way when it comes to sales and tenant mix. Look for the tenants that can build sales from each other. Build clusters of tenants that work for you. The results will be a stronger market rent.
- Anchor tenant weakness or trade problems should be addressed quickly. Any customer perceived weakness in the anchor tenant will soon reflect in a property decline in sales.
- Lower levels of sales in the property or with some tenants will be a concern. The sales in the property should be tracked by tenant and by tenant category; in this way you will see how the property and the tenants are tracking in the local community seasonally.
- Shifts in customer demographic will produce a change in sales. Look for those changes and help the tenants to act early. Profile your community at least once per year and ask the customers what they expect from the property and what they like about it.
- New property developments to occur in the local area will detract from your customer base. Watch out for new properties coming up for sale or lease that shift the balance of supply and demand.
- Higher incentives in getting a new tenant to your property will occur from time to time depending on the supply and demand for local retail space. Be flexible and adaptable when it comes to incentives for new tenants.
- Competing properties in the local area can be taking some or all of your trade. Monitor these other properties frequently and watch for changes in the anchor tenant offering. If the anchor tenant changes, it is likely to shift the retail balance in the entire local area.
- Aggressive landlords that attempt to push the rental of the property too high can threaten the tenant mix stability and the viability of a tenants business to operate. Tenants will soon spread the word of any difficulty with the landlord, and that can have an impact on the property overall.
A retail property is a special place for shoppers and tenants. Manage your retail property well and with a base strategy that encourages trade for all concerned.
One of the biggest problems in commercial real estate agency is getting organised for your business day and keeping to your time management plan. So many things happen every day as an agent that can easily distract you; distraction leads you down a path that generally wastes your time.
Your commission and your quality listings depend entirely upon your ability to stick to the essential tasks that will bring you results. Clarity is required to determine the key issues that make all the difference in your business.
Lots of people will want part of your business day. They include:
- Clients need to be kept up to date
- Prospects will require networking
- People calling from your advertising and marketing efforts
- Inspecting new properties and new listings with buyers and tenants
- The boss will want to call meetings with the team
- Other Agents, etc
Some of these people are more or less important than others. You can make the assumptions and set the priorities. The most successful agents and top agents that I have worked with will protect their time allocations, and their time commitments with both themselves and other people.
There are just three or four things that will make all the difference in your career and real estate business. Those three or four things need to be done every day. Top agents will do those things to stay on top of their market and maximize the opportunities that are available.
Here are some strategies to help you with your business activities and time management procedures:
- Create a list of things to do every day. Prioritise those things into the essential tasks and the general tasks. The essential tasks should be done every day without fail. One of those tasks will be prospecting with new people.
- To help you in this process, you can create a mind map of critical issues that relate to your agency and your activities. On most days, you will only ever achieve four or five things of great importance. The rest of the time will be taken up with general issues and general problems. Do not confuse the issues of great importance with general problems. It is far too easy to get distracted and you are the only person that can make the decision regards your actions and tasks.
- Plan your day the night before so that you are well organized before you reach the office. When you reach your workspace or desk, you should already have a list of things to take you into the essential tasks and the critical issues.
- Top agents tend to use a focusing system on the essential tasks for the business day. You can do this with a simple spread sheet and a tick box process. Every day you simply pick up the spreadsheet and move through the critical items are required to be actioned. You do this before anything else.
The commercial real estate industry offers significant opportunity for organised and active salespeople. Your degree of success will depend upon your ability to focus on the critical issues that are most important to your commissions and listings.
One of the significant problems in a commercial real estate team today is the lack of goals or the focus of individuals on previously set goals. Goals are commonly set by the team leader for both the team and the individuals on a yearly or quarterly basis. In many cases the personal goals are simply a ‘wish list’ that never really gets activated. At the end of 12 months, the goals have simply not been achieved and the salesperson has not changed their personal performance. So everyone heads ‘back to the drawing board’ to set new targets.
The reasons salespeople should be setting their personal goals is to give some firm targets to aim at and strive towards. Goals should never be a ‘wish list’ that is relegated to the bottom drawer of the desk and only to be taken out when questions are asked.
Commercial real estate sales and leasing is a result driven industry and career for those that are prepared to work hard. It is certainly not and industry for the feint hearted. Constant focus and continual action are critical parts of personal improvement and results.
Most salespeople and agents will understand the focus on listings and commissions; they will not however change their habits to generate more listings and commissions. That is the reason why so many salespeople struggle in difficult markets and move from agency to agency looking for the ‘pot of gold’ at the end of the rainbow. The answer ‘lies within’ as they say.
The real purpose of establishing goals is to set some clear perspective on where the salesperson can head if they take consistent and relevant action. Goal setting and goal management really does work providing you give it the due regard and focus that it requires.
Here are some rules to the process of goal setting in commercial real estate today:
- Understand your local property market and the possibilities that it provides. There is no point focusing in a market segment that has no future or opportunity. There should be plenty of listing opportunity available for your choice of property and choice of market. Get this information sorted and defined before you continue.
- Define your market geographically on a map. Set the boundaries that you want to work within based on the major highways and any of the main roads. Inside the relevant area you should have sufficient listing stock that is easily identifiable.
- After you have defined your market geographically, look at the history of the area relevant to the property type. Research the sales and leasing activity that has occurred over the last 5 to 10 years. That research will show you trends and opportunities for the future; it will also show you the players or property owners that are active at various times.
- Having satisfied the previous three points, it is now time to decide exactly what advantages you bring to the market in and with your property specialty. Why are you different? What can you do for your client that is relevant and important? Are you better than the other agents in the area, and if so why?
- Providing all of the above points are ‘in balance’ and suitably positive, you can now set some clear goals and targets. With due regard to the history of the area, you can set some targets around quality listing stock, exclusive listings, time on market, and commissions. Have a serious look at the quality of property that you can work with. Quality listings bring in better enquiry in any market; for this reason you need quality properties that are controlled by you or your agency on an exclusive listing.
- All of your goals should be quantifiable and easily tracked. Each few days and certainly at the end of each week you should be revisiting your goals to identify how you are progressing. In most cases many salespeople need to adjust as they proceed in their goal management plan. The road to success requires effort and change. Be flexible and be open to adjustment.
The process of goal management and goal targeting is one of the best ways to get salespeople on track. Expect the entire process to take personal effort and real focus. After approximately three or four weeks of hard work, the whole thing gets a lot easier and results start to come in. From that point onwards you know where you are heading and how it’s occurring.
In commercial property management, the process of income improvement is fundamental to the performance of the asset for a property investor. There are many ways the income for a property can be improved; the greater number of tenants in a property, the easier the process is. If you have a single tenant, then your options are limited.
When the property market is slow and tough, the income from the property is more important than ever before. The basic rule is to minimize the vacancies within the property and to optimise the occupancy given the available tenancy space.
Here are some further ideas for property managers to improve property income for the landlord.
- Selecting the right tenants for the property will always be an important factor in the leasing strategy overall and the property management process for the property. In an ideal world, you want tenants that can bring you both stability of occupancy and good business profile. High quality corporate tenants bring an identity to the property that may also attract other tenants to your other vacant tenancies if and when they arise in the same building.
- Rent review terms and conditions are created in and from the initial lease negotiation. To a degree, they will be shaped from the pressures of the particular lease negotiation. The lease negotiation will then be influenced by the prevailing market conditions. All of that being said, the rent review terms and conditions should be suitably shaped to improve the landlords position and rental income. Many agents and property managers choose to use or negotiate a rent review profile for a lease that is indexed to the growth in CPI. In most cases, this process only has benefit to the tenant given that the rent increases in a limited way. It is better to target rent reviews that are established to a more substantial rental increase for the landlord; that can be through a fixed percentage increase, or a fixed amount increase. Market rent reviews are also useful and worth considering, although it does depend on the property, the location, supply and demand of vacant space, and the prevailing market conditions. In the case of a property that is only average in location and presentation, it is better to choose less market rent reviews and more fixed increases. The income from the property is therefore more predictable.
- Options are useful when considering the leasing of a property. It is always wise to remember that lease options will tie the property up for a number of years beyond the initial term. Options for renewal can remove some elements of control from the landlord, and on that basis they should only be used where the landlord feels totally comfortable with the process of giving the tenant an option for a number of years. In older properties that face redundancy this can be an issue.
- Extra rental areas can occur in any building. They may be created for storage, signage, and the use of special areas in the common zone of the building. The extra rentals may be established on separate licence documentation.
- Vacant space optimisation should always be considered. A creative property manager or leasing manager will look at the variations of occupancy and how vacant space can be fully leased at a top rental. Other tenants in the property may be candidates for taking up vacant space if they need to expand.
- Tenant retention plans will help you keep the right tenants within the property. You will also help you identify those tenants that should be moved on at the end of lease occupancy and expiry.
A commercial or retail property today requires creative thinking when it comes to income optimisation. There is a fine balance between charging too much rental and charging the right rental. If the balance is not achieved, you can finish up with excessive vacancies within the property and a lack of potential tenant enquiry. This is where an experienced property manager or leasing manager can provide the knowledge and experience to a landlord. Watch the property market and the properties that you compete with; the tenants that are out there are doing the same thing.
In today’s marketplace the Real Estate Agent needs to be technologically supported as both an individual and an office. Good database software is the only way to support ongoing customer relationship management and control your accounting processes.
Whether your office is focusing on property Sales, Leasing, or Property Management, you will need database software to support your activities. If you diversify further into the disciplines of business sales or commercial, the needs of your database software will need to be further enhanced to satisfy the unique conditions and activities of those transaction types.
Before we go further with this topic, we will say that you need to be very comfortable with using computers as regular business tools for your business today. The more that you do this and the more effective you are at it will be critical to your future real estate success.
So what Database is Best?
Essentially there is an array of database software alternatives available. These can be generally acquired through retail outlets or by purchasing online. Most of these generically available products are very good software packages but have not been specially shaped for the Real Estate industry.
This then means that you must spend some time on the software to shape it to your particular needs. In most cases this will not be a problem for the person familiar with software technology and computers. If however this is an issue for you, then you’ll need to seek expert assistance from a consultant to install and shape the software for you.
A good choice of software for your database will save you time and help you keep on top of the opportunities. This means more clients and commission.
You will need software that tracks the prospect and the series of interactions that you have had with them. The software will, at the most basic end of the usage spectrum, also need to:
- Mail merge to letters and emails
- Integrate with ‘Microsoft Outlook’ or your email client
- Integrate with your mobile phone synchronization
- Create diary recalls of critical issues and the next contact event
- Contact detail
- Property detail
- Recording of all correspondence
- Allow you to classify the prospect to the type of property they want or have, and their capabilities and needs in that regard
- Allow you to make notes of conversations and meetings with the person
- Flag urgent and critical issues of response or opportunity
Commercial real estate is similar to other types of property in that you must logically and consistently work your territory. Your success in the process will give you greater listing opportunity and future deals. This will have immediate impact on your income and your success. This says that you must therefore be diligent and logical and how you approach territory management and control. We call the territory your ‘patch’. In controlling your territory, you must do so geographically street by street, so that you do not miss any properties or create any ‘black spots’ or ‘holes’ in your information. Many agents and salespeople have had situations where they have overlooked a simple small property in their canvassing processes only to find another agents board on the property offering it for sale or lease. Nothing can be more frustrating than seeing another agent’s signboard located inside your geographical area and a street that you canvassed last week.
Your Canvassing Object
In the territory that you work you will be optimising your commercial real estate awareness and knowledge of a number of property matters.
They are –
- Existing businesses
- Vacant land
- Redundant properties
- Development sites
- Property zoning areas and policies
- Owner occupiers of property
- Investor property owners of property
- Tenants occupying property
- Allied professional property related groups and people (solicitors, accountants, engineers, architects, quantity surveyors, valuers, town planners)
- Local Council Planning officers
The list is not finite, and can be improved to the specific nature of your region. To get thing started, firstly every major property in your territory must be high on the agenda for identifying ownership details and location. When you have this detail you move to more secondary property, and after this has been secured you will then get the detail of all remaining property through your region. It pays to get quickly active in the known property ‘hotspots’ such as industrial parks, and office business precincts, so that you can find to ‘hot’ listings before they go to other salespeople or agents.
Mapping and Planning
The best way to control your long term activities is to get a street map of the area and then work the geographic location in stages. Essentially you need to understand your area in great detail and have a solid awareness of the following matters –
- property ownership
- tenants and decision makers therein
- property zoning and potential changes there to
- property prices by property type and region
- property rental by property type and region
- property outgoings by property type and region
- lease detail and tenancy detail for all major and targeted properties
- a lease expiry profile for all major buildings and for the region
- regional business demographics
- regional population demographics
- regional economic demographics
- road changes and major traffic flows
- other competition properties and listings
- other agents in the area and their listings
- recent sales results in the area
- Details of properties that have been sold approximately three years ago and beyond, as these are the next properties that will enter the sales arena for disposal.
- Details of properties that have been leased approximately three years ago and beyond, as these are the next properties that will have a need for leasing services.
- Details of property owners that bought property about three years ago in the region as they are most likely to be sufficiently cashed up to acquire again soon.
This information will help you understand future opportunity and position your services such as sales, leasing, and property management.
When you manage a retail property there are a lot of things going on that need control and communication back to the landlord. That is where a good reporting system will help you greatly as a centre manager.
It is no secret that the retail property market can be a challenge at the moment with a significant shift between retail sales on the internet, versus retail sales in the shop. It is the retailer that suffers the downturn in trade, and as a consequence they must revisit their product and service offering. If they cannot make a go of it, then a distressed tenant soon turns into a vacant tenancy. The landlord then suffers in loss of income.
Today more than ever before there is a strong bond between tenants, customer, landlord, and property manager. The balance and success of a shopping centre sits in between all of them. They all have a vested interest to make a retail property work and perform as an investment.
Whilst it is nice to have a tenant and a lease for retail shop premises, a vacant tenancy is a waste of time and energy for all concerned. It is in the landlord’s best interest to help a tenant succeed in a retail shopping centre. The link between the two parties is the property manager. A good property manager knows how to help a property thrive and grow as an investment; they also know how to assist a distressed tenant get back on track with sales and customer numbers.
To keep the landlord fully briefed on the performance of a retail property, the monthly reporting system needs to be comprehensive and advanced. Here are some of the big topics to help you structure and provide a monthly report to your landlord client.
- Tenant mix activity should always be tracked. That will include the changes in a property and the upcoming lease activities.
- Lease rent reviews and lease options coming up should be planned and actioned early. Do not leave these things to the last minute. Many a landlord or property manager has been taken by surprise when it comes to a lease document that they did not fully understand.
- Tenant renovation will always be a priority in retail shopping and shopping centres. A shop that looks poorly for any reason will deter customers not just for that particular tenant, but also for those other tenants that are nearby.
- Maintenance in the property will occur for both planned and unexpected events. You must report on maintenance budget activity and results each month.
- Sales by tenant category and by tenant will give the landlord an indication of just what tenants are successful and those that are struggling. Trend these numbers in a graph so you can see what is going on in the property.
- Vacancy marketing will always be important to minimise the impact of loss of rent. Any existing or upcoming vacancy should be comprehensively marketed to attract new tenants to the property.
- Centre marketing to the local community will help with sales for each tenant. There should be a marketing fund for this process. The tenants lease should allow contribution by each tenant to the marketing fund.
- Income and expenditure will be updated each month for the property. In an ideal world the income and expenditure should track closely to budget; that being said, there will always be challenges that need resolve and management.
If you manage larger retail properties, then this list will get larger and deeper. Control will allow you as the property manager to keep the property on track as a retail property investment.