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.
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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.