In every investment property there will be factors of change to manage and implement. In any year the pressures of the tenancy mix and the requirements of the current property ownership will generate change in property performance. In saying that, every investment property should have a business plan that takes into account the strategies of the landlord when it comes to investment outcomes.
Here are some ideas to help you track and manage change within any commercial investment property.
- Lettable space – the lettable space within the building should be optimised in a number of different ways. To do that you can move tenants around subject to the timing of leases, and the negotiations with existing tenants. To establish that level of control, you can create tenant retention plan and leasing strategy for the property. In that way you can allow for expansion and contraction requirements within each tenancy. You can also allow for the pressures of an upcoming known vacancy. If you have a high quality tenant in occupancy, it pays to help them rather than frustrate them when it comes to occupied space. A good tenant needs to be retained rather than lost.
- Renovation and refurbishment – with any investment property there will be times where renovation and refurbishment activities will need to occur within the asset. That can be a complex process given the number of tenants in the tenancy mix and the types of customers visiting the property. In any office or retail property you will find that the renovation or refurbishment concept needs to be carefully planned and managed. The effects on tenants and customers from any renovation program should be controlled at all times. Failure to do so will see a potential loss of rental and a business threat to existing tenants.
- Better tenants – understand the tenants that you have within the tenancy mix. Some tenants will be better than others when it comes to brand, marketing, rental payments, and business magnetism. Some tenants will draw business to the building and in that way encourage the overall levels of trade and exposure for other tenants in the mix. Understand the differences between your tenants, best locations for each tenant, and the clustering factors that can encourage better levels of trade and customer attraction.
- Rental upgrades – throughout the year there will be a need to assess market rentals as they apply to the location, the tenancy mix, and the property type. Rental expectations should be strategies set within the business plan for the property. Every rent review coming up over the financial year should be estimated, established and negotiated on factors within the lease document and the prevailing levels of market rent.
- Lease documents – every lease document should be reviewed for complexity and critical dates. There will be certain terms and conditions in every lease document that will have an impact on occupancy and income expectations. Some lease documents will therefore be better than others when it comes to property performance and investment results. Before you embark on any change management activity, understand the lease documents that you have currently in the property and how those lease documents will respond through the upcoming project or expected change.
- Property strengths – every investment property will have strengths and weaknesses to be understood and addressed. Any change management program should allow for an improvement in property strengths and a resolution of any weaknesses. The weaknesses can generally be removed by modifying the tenancy mix, upgrading lease documentation, and undertaking a renovation or refurbishment project.
- Improvements and services – in providing property improvements, amenities, and services to the tenants in any investment property, understand how factors of technology may be changing locally when it comes to business function and occupancy. Any modern investment property should be maintained in a way that allows for gradual improvement and upgrade when it comes to technology and tenant occupancy.
- Moving tenants – don’t be afraid to move tenants around when lease advantages and requirements are noted in the tenancy mix. Some tenants will be more successful when located to other premises within the same building. There will also be pressures of change when it comes to tenant or business expansion and contraction. Look at the clustering factors applying to the tenancy mix. Some tenants will be much more successful when placed near complementary tenants in the same building.
- Anchor tenants and specialty tenants – anchor tenants are usually those that occupy large parts of the property for a considerable period of time. The rental structure for anchor tenants will be totally different to that of specialty tenants; the levels of rent that apply to an anchor tenant will usually be less per square metre or per square foot than the rent paid by a specialty tenant. A good anchor tenant will help you attract specialty tenants and lower the vacancy rate. The strategies that apply to the two tenant types will be different and should be merged into the tenant retention plan for the property.
So there are some good things that you can do here when it comes to managing and optimising change within your commercial or retail investment property. Understand the property as it exists today, consider the prevailing market conditions, and look for the opportunities that can be created over time for the property owner. That is how you improve an investment property. Bring together the strategies of a business plan, a tenant retention plan, the lease marketing strategy, and the tenancy mix.