When investing in commercial real estate of any type, the tenants in the mix and the income streams are critical to financing approval and asset performance.

Ultimately, most landlords or investors want to improve their income; that is to be expected. So, what are those income streams, and how can you do all of that ‘improvement’?

Enhancing Rental Income

Check out the ideas below so you can do more with your retail property and its income potential.

1. Considering Rental Types

Rent is based on gross or net rent recoveries or payments. The difference in those rental types will be the property outgoings. Depending on the property leases and the tenant types, the tenants may pay the property outgoings in part or entirely. Inspecting all leases and reviewing the tenant mix of any property you consider purchasing is essential.

In every lease, there will be rent review methods to consider. Various ways include the CPI index, fixed % increases, or market rent. The one to be careful of is market rent, and to then understand if there is any ‘rachet clause’ in the lease to stop rents going backwards (and they can sometimes do that, and without a ratchet clause, the rents can fall).

In retail premises leases, the market rent can go backwards, so many landlords are sensitive to that ‘hurdle’ in the potential future cash flow. They will review the tenancy mix and the lease terms and conditions for any new tenant before considering the potential of the future income stream.

2. Setting Better Lease Terms

Look at all leases in a property to see the differences, the clauses and how they may work. There are dates to watch in leases of commercial and retail property.

The dates are sometimes ‘time-critical’. On that basis, the critical dates are checked for timing and implementation. The question to address is whether the dates are all satisfied and ‘current’.

3. Give Options or Not?

Lease Options – Will any tenant leases have an option for a further term? A lease option for a tenant is something that they will generally ask for at the time of new lease negotiation.

The question to consider is if the opportunity could impact what the property owner or landlord wants to do with the property. For example, a lease option payout is expensive, yet the landlord may have to do that if they want to create a vacancy to upgrade or renovate the lease space.

4. Solution for Better Tenants

The rental and the tenants in the mix usually impact and enhance a high-quality commercial or retail property. Review the tenant mix and the lease documentation that applies.

Decide if any tenants could be a strength or weakness to the property investment performance. Make plans to adjust around those facts where you can.

5. Finding More Rentable Space

You can add more rentals to your leased property by creating more lettable space. In retail shopping centres, the strategy works well.

Add to that the short-term leasing of other areas such as storage, common areas, advertising signage, and car parking. That is how you build the income streams of a commercial or retail property.

6. Property Outgoings and Costs

These are the costs of running the property. There will be rates and taxes to consider throughout the year, as well as repairs and maintenance-related costs. Some of those costs are ‘timed’ and can be applied to a budget for the property.

When you tally up all the outgoings for a commercial or retail property, the following review process is to compare the outgoings by the amount to other properties in the location and of a similar type.

Property Strategy Matters

By assessing all these factors, you can see how property rental returns can be improved. The tenant mix, operational issues, and lease documentation all have an impact on a commercial or retail investment property in addition to the market conditions. All commercial or retail properties should be managed and leased with the control or benchmarking of a property budget.