In commercial real estate leasing there are many different factors that come into consideration with any lease negotiation. That being said, some stand out as the most common issues to be worked through by landlords and leasing brokers.
Initially the tenants ‘call the shots’ when it comes to starting a negotiation and making an offer on leasing office space. The essential ‘factors of attraction’ have to be there at the very start to get things moving. Typically those issues are:
- Occupancy costs – the rental spend has to be there at the beginning of any lease negotiation. Can the tenant afford the property given all the factors of occupancy? Remember that occupancy costs add up and include base rent, outgoings, electricity, water, communications costs, and maintenance. These are base building charges that exist in most leasing deals; look at the building budget for this year and understand how that budget will impact the property and the occupants. What are these costs with your quality lease listings? Can you provide a tenant with all of these facts?
- Technology support and integration – Most tenants in office space today want to integrate their business into the World Wide Web and global market place. That requirement could include high speed online portals, reliable telephone systems for both wired and mobile communication, data cabling, dedicated antennas for special tenant use, and secure risers for highly sensitive cabling and portal communication.
- Environmentally friendly occupancy – Most office tenants today will ask questions about natural light availability, energy costs for tenants, air conditioning quality and service, and the building compliance to environmental standards and safety support systems (fire, evacuation, bomb, and other modern day threats). You will need specialised consultant or engineering reports to provide these answers.
- Business location and proximity to other tenants – Some businesses like to know who and what other businesses occupy premises in the same location. There are sensitivities that can exist between tenant types and across tenant proximities.
- Branding – What image and branding can the tenant bring to the property? There will need to be strategies in place for directory boards, advertising, signage, and logos. In a building with multiple occupants, the strategies should be set. Each tenant will have certain branding demands; in some cases you can ask for extra rent to be paid for special considerations such as ‘naming rights’ and the directory signage.
- Landlord – Many tenants know all too well that a landlord can make or break comfortable lease occupancy. Some landlords are just too tough on tenant occupancy, fitout use or flexibility, and mid-term rental review negotiations. Over time that can make things really frustrating for tenants that just want to get on with business.
- Fitout – What will be the fitout requirements and specifications for any tenants? The landlord should determine what ‘standards should be set’ when it comes to tenant fitout and construction; in that way the quality of the building is maintained. The landlord should also determine what they will regard as ‘base building’ as any landlord cost in a fitout.
When you have these 7 factors under control for your lease listings, you have most of the lease momentum under control.
When you look at a commercial or retail property for the first time, it is important to review the leases and the tenant mix. In a property with multiple tenants it can be a complex and daunting task. In such case the only way to really get the job done well is to use a checklist approach. When you follow a list process you can go through many leases and tenant situations with ease. Here are some tips from our Newsletter.
So why would you want to check the tenant mix and the leases? You should be looking for occupancy issues that are relevant to each tenant and ensuring that those occupancy issues agree with what you are seeing in the property.
Here are some ideas to help you establish your lease and tenant mix review process. You can add to this list given your property type and location.
- Get the names of the tenants and make sure that they agree with the tenant positioning that you have observed in the property. What you are looking for is any situations of unauthorised or undocumented occupancy. As part of that process you could find some sub-tenants, assignments of lease, lease alterations, and many other changes within the property. They will all need to be checked out. Whatever issue you find, ask for the supporting documentation as proof of the current situation.
- Ensure that the lease description corresponds to the tenancy location and the permitted use for the premises. Is the tenant using the premises in accordance with the lease terms and conditions? When in doubt go to the lease for the details. Any sub-tenant or assignment situation should also be in compliance to the terms of the lease.
- Review all the leases for critical dates. They are the dates relating to things that have to be done between the tenant and the landlord. Most particularly they are rent reviews, options, lease expiry dates, renovation provisions, and insurance obligations.
- Check out the outgoings that should be paid under the terms of the lease for each tenant. Make sure that all outgoings charges and payments are in accordance with the leases in all respects.
- Make sure that the current rents for each tenant are in balance and accurate for the lease for each tenant. Ask about any arrears that could be outstanding and why that is the case.
- In a property with a large number of tenants it pays to look at how the overall property performs with the tenants in current locations. Look at the tenant clusters to see how they work. Some of those clusters may be impacted by relocations or renovations in the property.
The reviewing of the tenant mix is a hands-on issue that should be personally undertaken. It has to be done with great accuracy before you do anything else in the property. Learn to read and interpret property leases. You will also find that a checklist will help keep you on track.
Like to know more about leases and tenant mix? You can get more detail in our Newsletter.
In commercial real estate today the clients that we work with want one thing and that is in one word ‘results’. It is the common thread that runs through everything in commercial real estate sales and leasing.
Every client will have different criteria when it comes to ‘results’, however the fact of the matter remains that ‘results’ are the lever to client satisfaction and referrals. Top Agents focus on what I call the ‘results factor’. They aim for the results that will bring the best opportunity for the client and close the deal at the best possible outcome. When the client is happy, ongoing business will come towards you over time. Top Agents grow their business on the successes that they create for their clients.
It is no secret that the commercial and retail property industry is a bit of a challenge at the moment; that being said, results are still very possible and the agent can set up the circumstances for the client to find them.
When you list a property, get to the bottom of what the client sees as the ‘result’ that they require. A degree of honesty will be required on their part to share what they ultimately require. That honesty will only exist in an ‘exclusive listing’, but is unlikely to achieve when it comes to an ‘open listing’. In an ‘open listing’ clients tend to hold back from the full and honest facts of the sale or lease. From the very start of the listing the agent has to ‘read between the lines’ with a client that is less than open and free with all the property information. Perhaps I generalise, but it is a common problem that impacts the marketing effort for many commercial real estate agents.
To help you get to the bottom of what the client sees as the best ‘result’, here are some thoughts to take you forward and create successful listings:
- What is the best timing of the sale or lease?
- What factors exist in the property that could slow down a transaction?
- What is the price or rent that the client sees as the lowest they can afford?
- When can the client commit to the marketing program?
- Will the client provide vendor paid marketing funds?
- What can the client commit to when it comes to preparing the property for sale or lease?
- What will be the best method of sale that can help the client get the best levels of enquiry today?
- What will be the best rental and incentive to attract tenants to the property and inspect the premises?
Get to the real facts of the property and the clients situation. When you do this you can be a commercial real estate agent that brings in the ‘results’. Top Agents do that all the time.
In commercial real estate, the listings of other agencies will always be an opportunity for you for future business. Whilst it is always nice to create fresh new listing business yourself as part of your prospecting model, the other agents listings should be watched for the opportunity that they create.
Those other listings will give you not only local knowledge relating to market conditions, but also real opportunity to convert other listings around them.
Where are you today?
Before discussing this matter further, it should be said that your market share today should be identified and quantified. This will mean a regular ongoing tally of listings on an agency and salesperson basis through the local area both in property sales, and property leasing.
The best way to achieve these numbers will be through monitoring signboard counts, Internet listings, and newspaper advertisements. It is fundamentally important to understand where you are today before you can determine how to improve your market share. Is also important to understand who those competing agents are that may dominate the market today and why they do so.
The other listings
The other agents listings locally will offer some leverage and opportunity to you as part of market churn, and new business. Here are some ideas to help with that:
- Expired property listings that have been neglected by other agencies over the marketing time, will be listing opportunities for you today. In many cases, the property owners of expired property listings will be frustrated and therefore highly motivated to choose another agency and fresh marketing strategy. That being said, any new listing achieved with these property owners should be taken on a basis of modified price, modified rental, or changed marketing. There is no point in repeating any marketing errors that were unsuccessful with the earlier appointed agent.
- Every existing a property listing with another agency is an excuse for you to talk to the surrounding property owners near the particular listed property. A property that is available for sale or for lease is usually a catalyst for change in any other properties nearby. If any local business owners or property investors are thinking of selling or leasing, the best time to do so would be coinciding with nearby properties marketed with other agencies. The process of competition will help you convince those business owners or property investors to list and market their property today.
- Time on market will be a factor that relates to both sales and leasing. Some properties will take longer to shift than others. There will be reasons behind the delay in achieving a successful transaction with any property. In some cases, the reasons may be regional, or maybe even attributable to the particular listing agent. Interpretation and observation is really important to help you get on top of the market trends. You can talk about time on market and levels of enquiry locally to help convert more listings your way.
- Methods of marketing will vary from property to property and location to location. Importantly, the best method of marketing should be chosen for the particular property type and the prevailing market conditions. When you observe the other agents listings, you can see what works and what doesn’t when it comes to marketing. This information can be leverage for you when it comes to your sales presentations and pitching for further listings.
- There is a distinct cycle of property change that relates to commercial property sales and leasing. Whilst this may vary on a location basis, you can usually pick the cycle averages from previous sales and previous leasing regionally. For this reason, you should go back in history looking at all the property sales and property leasing activity with all the other agencies. Commercial and retail property sales usually happen about every 5 to 7 years. At around about that time the property owner is either looking for property change or expansion of their property portfolio. Over that period of 5 to 7 years, there will usually be sufficient capital gain for a successful property change or property acquisition. The same timing factor can be said regards leasing activity although for different reasons. Many commercial and retail leases are timed to initial terms of 3 to 7 years. The tenant and or the landlord in any lease are likely to be looking for property assistance as part of that lease cycle timing.
There is no doubt that significant opportunity exists for you today in monitoring the activities and listings of your competing agents. That being said, it is not the only thing that you should do as part of your prospecting model, although it will help you significantly if approached in the correct way.