When you work on retail property as an agent, you will soon see the need to specialise locally. There is a lot of difference in property performance when you compare retail property to office property and industrial property. The factors that drive rental, lease enquiry, and property performance are totally different.
If you choose to be a retail leasing specialist, it pays to have a comprehensive knowledge of the factors that drive retail property sales, and retail property performance. All of these factors are linked and impact the activities of the tenants, the tenancy mix, the landlord, and the property manager.
Retail leasing strategies today will vary from property type to property type and location to location. They are however underpinned by local market awareness. To help you with the local market awareness here are some tips and ideas that you can merge into your business activities.
- Get to know all of the franchise groups that are located in your region or those that could be located in your region. Franchise groups are greatly involved with retail property leasing and property performance. They bring a brand to the property that can have significant benefit to the overall tenancy mix. That being said, they have a specific need when it comes to finding the right property and occupying that property. In many cases they will bring a specific lease to the landlord as part of the lease negotiation. In those circumstances, it pays for the landlord to have an experienced property solicitor to help them with the adjustment of the franchise lease document to make it relative to the subject property.
- The competing retail properties in your local area will always have factors of change. That will include expansion, contraction, renovation, and refurbishment. All of these things can shift the tenancy mix and drive tenants to other locations. That will have impact on your particular subject property. As a specialist in the area, keep on top of the changes to the local area in both demographics and property availability.
- Most shopping centres will have one or more anchor tenants as part of the tenancy mix. Anchor tenants are very special when it comes to the future of the property and the attraction of specialty tenants to the shopping centre. On that basis, it pays to connect with the relevant and successful anchor tenants that could occupy medium to large retail properties. Anchor tenants may be department stores, supermarkets, or hardware stores. Given the size of the tenancy that they would occupy, the rental terms and conditions will be significantly different in circumstances to those that are offered to the smaller specialty tenants. In exchange for these differences, you would normally negotiate an extensive and comprehensive lease with the anchor tenant over a long lease term. That being said, the anchor tenant must be the tenant that you require to match the needs of the local shopping demographics and the tenancy mix.
- When it comes to retail property, there will always be alternatives of rental, lease terms, and occupancy conditions. They will include rental levels, rental types, fitout controls, refurbishment strategies, relocation strategies, and landlord investment requirements. Get to know the activities of all competing properties so you can bring that information into those retail properties owned by your clients.
A property person that specializes in retail leasing will be in regular contact with the local business community. It is this business community that provides the specialty tenants for your properties. As part of that process, you should also be contacting tenants in other competing properties in case they need to change location or expand their particular business.
When it comes to managing a commercial or retail property, the landlords that you work with will have specific needs and requirements for the monthly report. In the monthly report certain things will need to be monitored and tracked to ensure that errors and omissions do not ‘slip through the cracks’.
Many a property manager has suffered the consequences of overlooking critical dates and critical issues in a particular property that they manage. For this very reason, the end of month report can be a very efficient way of monitoring current and future activity within the particular property.
Gone are the days of simply giving the client a financial report at month end with little commentary as part of the property management process.
Landlords expect property managers to provide a comprehensive and detailed property management process. It is not simply a matter of collecting the rent and chasing arrears. There are many more things to do when it comes to commercial and retail property performance.
Here are some tips and ideas that can be incorporated into your monthly report as it applies to your property management clients and landlords.
- The property income is always of concern to the landlord given that they need to match the income to their financial obligations and investment targets. The income should therefore be tracked on a daily basis to ensure that lease arrears are identified as soon as they occur. Some tenants will frequently stretch the required lease payments and make a late payment. The reality of the situation is that any late rental payment is in fact a default under the terms of the lease. The property manager needs to see this late payment of rental as soon as it occurs, and take the necessary action in accordance with the instructions that the landlord provides. As part of the monthly report, give the landlord a summary of income paid, income charged, and defaulting tenants. Always seek instructions from the landlord regards these defaulting tenants and the required processes of income recovery. A defaulting tenant can sometimes be converted back to ‘lease compliance’.
- The expenditure in a property will be both controlled and uncontrolled depending on the expenditure type. There are also some accounts that are ‘seasonal’ and quite large; for example they will usually be municipal rates and taxes, insurance, and energy costs. The property should always have sufficient funds to pay for these large and significant outgoings. For this very reason, a complex property with a lot of tenants will usually have an expenditure budget reflecting the timing of these outgoings activities and costs. The property manager should track the expenditure activity monthly to the budget, so that they know how much money they should hold back from the landlord as part of the end of month income remittance. It can be very embarrassing to all concerned when the property runs out of money at month end and the electricity supply is turned off to the building.
- The maintenance in a property will shift and change from time to time. Some maintenance in a property will be planned as part of the overall maintenance budget whilst others will occur as a result of unexpected breakdowns and repairs. The maintenance of the property should feature in the expenditure budget as part of the annual property business plan. At the end of each month the maintenance routines and the maintenance costs should be tracked against the existing and approved property budget.
- The tenancy mix and the existing leases within the property will have lease factors to be tracked. They will include rental changes, rent reviews, lease options, make-good requirements, insurance obligations, and renovation strategies. The list of possible actions and critical dates spinning out of the lease are quite large. When you take on a new property always review the leases comprehensively thereby defining any future critical dates that will require action and momentum at a particular time.
- The cash flow for the property will be optimized through a series of rent reviews, leasing strategies, new tenancy placements, and vacancy minimisation. The property manager should be managing these issues in a productive and comprehensive way. In doing this the property manager should be helping the landlord minimise cash flow disruption and instability.
- Lastly it should be said that the local market property conditions should be detailed in your monthly property management report. In this way the landlord can be completely appraised of the changes to the property market and the factors of supply and demand. When the landlord is briefed in this way, they understand the pressures of lease negotiation and tenancy placement. This knowledge will help when it comes to finding tenants and negotiating new leases.
This list is not finite; however it gives you a good idea of the complexity of the monthly property management report that can be created for your clients.
Take a proactive position when it comes to managing your particular property portfolio for your clients, and provide detailed comprehensive monthly reports. That will allow you to maintain and grow your property portfolio over time. It will also show your professionalism as an expert commercial or retail property manager.
When it comes to the leasing of commercial property, you as the commercial real estate agent really do need to understand the trends of the local area. It really does not matter if you sell, lease, or manage property as the main part of your job; you still need to understand how to lease a property and how that lease can improve the sale or the property performance.
The clients that you work with will expect you to bring significant local market knowledge to their needs and opportunities. That local knowledge will also need to be very apparent in your sales pitch and presentation; you want the client to listen to you.
It is a fact that many agents are far too general when it comes to the initial presentation to the client of the available services and solutions for their property. Being specific to the property helps the clients really understand the relevance that you bring to the property requirement.
Leasing is one of those disciplines that will eventually create a property sale or a property management opportunity. That being said, a commercial or retail leasing specialist should be suitably versatile to talk about sales opportunity and property management strategies as well. One commission opportunity will turn into several over time.
For a commercial real estate agent to be of any relevance to the client that they serve, they will need to have a toolbox of strategies to implement for any particular client or their particular property. Those strategies should not be generic, because the client is likely to be seeing a few agents before they make a selection on what agent should get their listing.
Here are some factors for commercial and retail property agents to optimize as part of their services and solutions for clients:
- Get to know the rentals in the local area as they apply to the different property types. There are differences between gross and net rental when it comes to different property locations and property types. In some leasing circumstances you may use a net rental strategy, whilst in others you may use a gross rental strategy. Either of these choices will have impact on the rent review process that you negotiate for the particular lease.
- In any particular property market is very common to have a variety of incentives available to new tenants. The size and type of that incentive will change from time to time based on the supply and demand of premises locally. When there is little vacant space available for new tenants to occupy, it is likely that the incentive will diminish or even disappear. That will only remain the case when demand for premises exceeds supply. Over time you will see new property come into the market through fresh new property developments; the leasing leverage that each landlord creates in those circumstances will be that of an incentive. As the local property expert, you need to know the incentives that are both available and sensible for any particular property that you could be leasing. Compare those incentives to other properties nearby and in the general property market. Offer the landlord some alternatives when it comes to those incentives and how they match the needs of that tenant enquiry that you know exists currently.
- When it comes to establishing a new lease, it is best to have some regard for the existing tenants in the current property and their proximity to the current vacancy. What you want to do here is spread the risk of any vacancies occurring in adjacent premises. In other words, you want to minimize the chance of multiple vacancies occurring at the end of lease terms at about the same time. The only reason you would have any adjacent vacancies occurring would be in the circumstances where a renovation or relocation strategy was required for property improvement.
- The operating costs for the property (the outgoings) that appear in any lease negotiation should be acceptably similar to those which apply in competing properties. If your property outgoings levels are too high, then it is likely that the vacancy will remain difficult to lease. On this basis it pays to understand the levels and types of outgoings that are available and charged in competing properties in your area. There is a large difference between the outgoings or operating costs charged for a retail property, and industrial property, and an office property. Generally speaking the outgoings for a retail property are far higher than those that would apply to office property. Similarly, an industrial property is at the bottom end of the outgoings scale in occupancy cost structure.
Get to know your local property market comprehensively and thoroughly. Properties will come and go in the area from time to time, and some rental or lease transactions will occur.
Get to know the actual rents that are achieved from the particular lease deals as they are the rents that are acceptable to the enquiring parties in today’s market. As part of this process, stay abreast of the future new property developments that are coming into your region and that could have an impact on the supply and demand process.
When you work in commercial real estate, your personal skills should be optimised for better new business conversion and growth of market share. On that basis, it pays to improve your personal skills through regular practice.
It is notable that many salespeople and specialists in the industry do not consistently practice elements their craft to improve on skills. If they did ‘practice’, they would reach the ‘top of the market’ faster. Self-improvement is the ‘fast track’ to the top.
So why do I say this and on what basis? I am an agent and have been fortunate enough to work on some big and complex commercial and retail properties; I have also worked with some good and not so good people.
Most of us will specialise in one or more of the following:
- Commercial property sales
- Commercial property leasing
- Commercial property management
- Retail property leasing
- Shopping Centre management
All of these things are quite specific and specialised. They all require unique levels of market knowledge updated regularly. In saying that, market knowledge will only get us through to some degree when it comes to working with clients and finding the business; your personal skills in property inspections, negotiating, leasing, and sales will help you significantly with your clients and market share.
Having worked with many agents and salespeople over the years, I know that most salespeople are very ‘ordinary’ when it comes to any of the six elements of required specialisation in our industry. That’s what I want to talk to you about now.
Those six elements are quite specific and all require strategy and skill development. When you do this, you win more listings and convert more deals. Here is a list of those 6 factors:
- Researching and prospecting the right people to approach in the local area should occur every day. Those people should be the decision makers and the active players in the current property market. Face to face meetings are really important in commercial and retail property. Over time those relationships will be strengthened and that’s where the listings will come from.
- Presentation skills in the first contact with decision makers will make or break the future relations that you need. In the first few minutes of your meeting, the prospect will determine whether you are relevant to them and their property needs. That relevancy and need may be today or in the future. Top agents start the connection and stay in the relationship for the long haul. It may take months if not years to get a result from the relationship.
- Questioning and listing skills relating to your property specialty and service are very specific. In every respect, you must appear to be the expert in what you do and what you know. Relevancy and competency must be there when you talk to clients. If you are not the ‘expert’ they will see it.
- Inspection skills at the time of listing and at the time of buyer or tenant ‘walk through’ can be refined and optimised by property type and location. In this way the property inspection process reaches a new level of accuracy and relevancy. Top agents know how to walk through a property, picking out the best things to talk about that will help the sale or lease (as the case may be). Property information and facts will help you here.
- Negotiation skills are an obvious need in our industry. It is very much the case that negotiation skills with most salespeople are ordinary and underdeveloped. Developing negotiation skills takes effort and practice, and it does not happen overnight. You can ‘fast track’ this with your business team as part of your weekly meetings and personal development processes. Top negotiators are good for one single reason; they practice.
- After all of the above issues, you will still need to document the property transaction accurately during the offer stages, and when the negotiation is successful. This then says that you must have a good command of the legal paperwork and documentation behind any property transaction. Many salespeople fail to address this issue and create documents that are weak or not specific to the transaction intended. Naturally, that will expose the agent and the client to the threat of litigation when something goes wrong.
It is remarkable how so many salespeople fail to improve their personal sales skills and business practices in our industry. Strive to be the best agent in your area by specialising on a particular property type and property client. In that way you can improve your relevance skills and drive far better market share faster.