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The Essential Strategies to Follow in Commercial Real Estate Leasing

As you consolidate your career in commercial real estate brokerage, there are plenty of opportunities to be had across the segments of the leasing market. There will usually be a good selection of local businesses, landlords, and tenants struggling to resolve occupancy issues.

 

If this is the property market segment for you, then consider how you can boost leasing inquiry and provide professional services to both landlords and tenants. There are some critical steps to the process to help you build your leasing momentum.

 

Leasing Facts

 

Let me set the scene here in your local area:

  1. Some tenants are looking to relocate due to pressures of expansion and or contraction.
  2. Some landlords have vacancy issues and pressures to deal with. Look for the vacant properties and then talk to the landlords directly.
  3. Some properties are quite complex in tenancy mix and occupancy. The larger properties are likely to have an array of leasing challenges including variable market rentals, upcoming lease expiries, and a changing tenancy mix.
  4. Market rents are changing in your town or city. Track the market rentals that apply to the different property types and precincts.
  5. The factors of supply and demand in the local area will shift occupancy rates and market rentals. Look for the local developments that could influence future supply and demand. Adjust your marketing efforts based on the upcoming changes to occupancy supply and demand.
  6. Many tenants today are looking for improved conditions of occupancy and better buildings. In talking to the tenants locally, you will soon identify what they are looking for in any new occupancy.
  7. Some landlords are overly aggressive when it comes to market rental negotiation. The landlords that push the levels of occupancy and rental recovery are usually the landlords that lose tenants over time. They are likely to have higher vacancy factors in their investment buildings.
  8. Many tenants are looking for improved factors of economy and cost when it comes to lease occupancy. Understand how you can bring factors of occupancy cost improvement into the tenant lease negotiations. Market rentals, outgoings costs, and rent review processes are ways of achieving a better rental package for the tenants that you serve. If you work as a tenant advocate, this will be a big part of your professional advocacy services.
  9. New projects are coming onto the market, and those projects will require a professional occupancy and leasing strategy. Many project leasing opportunities are quite large and can take months if not years to complete. If this is the type of work that you are focusing on, then be careful when considering commission charges, marketing costs, and resources to be applied to the project. Many developers will look for lower levels of commission and minimized marketing costs. They will be looking to offload many of the project leasing costs to the marketing agent.

 

All of these things are happening in most cities at any given point in time. They are all related to leasing and property performance. You are the best person to help resolve these challenges.

 

So here are some of the rules that you must follow to improve your professional profile as a top leasing agent:

  1. Concentrate on the market segments that have the best levels of churn and opportunity. There will be certain property precincts and buildings in your town or city that are higher on the selection list for new tenancies and new tenants. Work the buildings, the landlords and the precincts that have the best opportunity for change and churn.
  2. In talking to local business owners and tenants, adopt a checklist approach to understand where their business is located now, what they may need for ongoing successful business occupancy, and when their current lease may expire. When talking with decision makers, understand the pressures of today that they may be experiencing, and how they are looking at their future in the location. Show them the economies of the area that could influence their choices to relocate. Most business owners and tenants will be attracted to factors of efficiency and economy.
  3. Track the market rentals that apply to the property types and the precincts. When any new lease transaction has been completed, seek out the facts relating the finalized lease, and the agreed rental.
  4. When focusing on new properties to lease, bias your activities towards the larger properties, the quality locations, and the good quality buildings. In that way you will achieve a higher level of rental and better levels of interest as you market the vacancies.

 

So these are all strategic issues that can easily be applied to the tenant and landlord leasing services locally. Understand the factors of attraction in the local commercial real estate leasing market. Work the factors of attraction through your prospecting and marketing processes. The better buildings, precincts, and market rentals will always attract good levels of quality inquiry. Work with your landlords and tenants on that basis.

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Commercial Real Estate Leasing Agents – Taking Effective Tenant Enquiry is Easy to Do

In commercial real estate brokerage, the tenant prospecting process is a good part of the leasing business where you can create plenty of leads and listing ‘churn’.  Tenants will tell you so much about their property occupation, the landlord, and the neighbouring properties and businesses.  Talk to tenants every day and you will find lots of new business leads and listing potential just waiting to be acted upon.

Local Source of Information

So it is a fact that tenants are very valuable to the commissions that you earn and attract as a broker or agent.  They are a huge source of market intelligence and business opportunity.  You can track them in your database.

As part of connecting with those tenants you really should have a thorough and complete questioning process that gets to all the key facts of their property occupation and any upcoming change requirements.  You can do that directly and effectively.  It’s easy when you know what to say and do.  You can develop a checklist to the process.

Get to all the tenant facts

Here are some of the main rules to the process:

  1. WHO ARE THEY?: Understand who they are from the outset of the initial approach or enquiry. Ask plenty of questions so that you know who you’re talking to and how to contact them again in the future.  If they will not provide you with the appropriate contact information, then limit what you tell them about the listing and or the property market.  Your information is valuable, and they should trust you from the outset of any conversation.  A tenant that does not trust you is likely to be concealing a few problems and or issues.  They are also likely to be talking to a number of agents in the location.  Spend time with the tenants that are open and honest in their conversations and communications.
  2. WHAT’S UP?: What do they have now? Understand where they are located currently as a business and what they may be looking for in the future.  Drill down on the facts of occupation including occupied area, business function, staffing needs, customer profile, lease terms and conditions, and landlord problems.  From some very simple questions you can understand where you can take the leasing enquiry and create the conversion that you need.
  3. TIMING?: When do they need to make the change? There will be some critical time frames that apply to the leasing and property occupation process.  Some businesses have a timeline to property change.  That timeline can be impacted by annual business cycles, industry trends, and financial cycles.
  4. SHOW ME THE MONEY!: Understand the budgetary constraints applying to the tenant and within the property type that they are targeting. Some tenants have very little idea about recent rental activity and lease occupancy within a location.  They may have high expectations when it comes to changing premises, but little understanding about the rental budgets applying to occupancy in the particular precinct or location.  Don’t forget to include in your review the appropriate levels of outgoings that apply to lease occupancy in addition to any rental strategy or budget.  The total amount of money will be something that the tenant should fully understand and comprehend before they start looking at properties.  Make sure they can afford the property that they are seeking.
  5. THE IMPORTANT THINGS?: Question the tenant about any specific property needs and conditions. Certain businesses have particular requirements relating to property use, security, communications, staffing, and customer interaction.  When you fully understand those specific and special needs, you can match the property more effectively.
  6. WHERE HAVE THEY BEEN?: Appreciate what property the tenant has looked at previously and currently. It is quite likely that they have been working with or talking to other agents and brokers in your town or city.  They will have seen other property listings and developed an opinion of the property market from that process.  Depending on what they have seen and when, you will need to adjust your property short list and inspection processes.

From these simple and yet valuable rules, you can take any tenant enquiry directly and effectively.  It is easy to do and when successfully undertaken will help you shortlist the required properties in the required locations.

You can get more tips for taking tenant enquiries in our eCourse Snapshot right here.

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Commercial Property Management and Leasing – Tenant Fitout Standards are Really Important

When it comes to vacancy leasing within an investment property, the fit out standards that you set and work to are very important.  Those standards will help you when it comes to ongoing occupancy and property presentation.  Over time a property controlled in that way will maintain its appearance and its leasing standards.  That then helps with establishing and strengthening market rentals, and minimizing vacancies.

Poor Property Presentation

Most people can relate to and would have seen a property that is poorly presented and maintained.  In any office building or retail shopping centre you can soon see where the maintenance is inadequate and where things are not being done.  In many ‘owner managed’ properties that inadequacy can be a common problem.  Many investment property owners are ‘too close’ to the decisions required of expenditure and maintenance.  They can sometimes have differing priorities when it comes to property presentation compared to income paid and banked.

A well maintained property will attract tenants and achieve better levels of tenant retention.  A property of that type will also see lower vacancy levels and stable market rentals.  It directly follows that the appearance of the property and the maintenance program within is very important to help the investment improve over time.

Set Fitout Standards

Setting the correct fit out standards and policing those standards as part of the leasing process will help with overall property presentation and tenant retention.  Here are some specific topics to focus on as part of that overall standards strategy:

  1. Shop fronts – When you are leasing a property with multiple tenants in occupancy, the shop fronts and the entrance ways to each and every tenancy should be carefully considered and controlled from a visual aspect. The shop fronts should be standardised to a particular design, size, and lay out.  What you are trying to do here is maintain the appearance of the property.
  2. Marketing material and signage – Some tenants will try to ‘bend the rules’ when it comes to signage and marketing material. As part of the leasing process, the landlord and or the property manager should reserve the right to approve and control any signage within the property and on the premises for the duration of the lease.
  3. Air conditioning – Whilst the property may have central plant and machinery to supply air conditioning conditions, the tenant will need to tap into the plant capability and design. The tenants fit out should be adjusted to the air conditioning capability of the building.  There are unfortunately plenty of cases where that strategy has been overlooked or not properly controlled, and the performance of the air conditioning within the building is thereby compromised.
  4. Lighting – You can specify the types of lighting and layout for a tenancy fitout. That then has benefits from the aspects of energy consumption, illumination, and presentation.  You want a tenancy to look good, and lighting will have a lot to do with that.
  5. Electrical connections – There will be certain capabilities of energy supply to a property and a tenancy. Consumption monitoring is one factor to watch, but energy efficiency today is now a concern in property operational costs and outgoings.
  6. Standards and finishes – In any modern newly constructed investment property, the finishes and standards of fitout will be critical to overall wear and tear as well as appearance. Set the standards in consultation with the building architects.
  7. Entrance ways – The entrance to a tenant area and the entrance to a property are unique spaces requiring control. Entrance design and functionality should be balanced against safety and appearance.  Locks, finishes, and size of entrances will all impact those decisions as well as existing building construction codes.
  8. Fire and safety – Fitout designs require the integration of special factors of fire and personal safety. Building codes apply.  All tenant plans and approvals should be considered given the existing fire and safety codes for the property and the location.
  9. Floor coverings and wall treatments – Good quality floor coverings give longer serviceable life. The walls should also be painted with quality paints that give longer term protection and presentation to the property.
  10. Maintenance – How will the property and the premises be maintained? Who will pay for upkeep?  The terms of the lease will need to set out who pays for regular property maintenance and how that is to be done.

These are some of the bigger issues to work through as part of fitout design, approval, and construction.   Use a checklist to keep things under control.

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Commercial Real Estate Leasing Agents – Why You Should Understand Lease Covenants

As you service and help commercial real estate investment clients, lease covenants and terms can be a critical part of property performance and the established tenancy mix strategy. Every lease can be potentially different, and in a property with a number of tenants in occupancy, lease interpretation and management becomes really important.

 

To take matters a bit further, it is worthwhile establishing a checklist of lease topics and ideas to review with every property investor client. Understand what the client is looking for and how the terms and conditions of any lease will impact the clients overall investment result.

 

Ways to Review Leases

Here are some basic ideas and questions to raise and investigate as part of the lease structure and review process:

  1. Property Usage – understand the legal use of the property and the current zoning that applies to existing planning regulations. The tenant and the lease should be matched to the legal use of the property. The lease itself should clearly determine and control how the property will be used by the tenant. The permitted use clause within the lease should be quite specific and detailed. In a property with many tenants this strategy becomes even more important and critical to the tenant mix.
  2. Rental Structure and Strategy – the lease will reflect the strategy behind rental charges and collections. The lease may reflect gross or net rentals depending on the occupancy situation. Outgoings will also be recovered as part of the rental strategy across the year. Always review a lease in detail to understand how the rental structure works and the outgoings are recovered. When you understand the figures, you can compare them to the levels of market rental in the local area for the property type.
  3. Lease Terms and Conditions – comprehensively review all the terms and conditions of every lease within a property. Look for the variations that could have an impact on the landlord and their investment requirements. Look at the expiry dates and the options situations that will occur during the lease term. Some leases will impact the property cash flow and hence the investment. Learn to read lease documentation and interpret the longer term property cash flow. Compare the net rental results regularly to the potential property value, and in doing so achieve the capitalization rate or yield result for the client. Compare those figures to the current market conditions and the property type.
  4. Property Budget and Rental Budget – when working with an entire property and the lease strategies behind the investment, ask to see the overall property budget and particularly both income and expenditure in an itemized form. From the budget you can assess expenditure rates per unit of area and compare those expenditures to other properties locally; you can also see how outgoings expenditure is recovered from the tenants given the existing lease documentation. From an investment perspective, your leased property should be within the expenditure averages for the property type.

In reviewing these four topics, you can move further into issues of property performance. Start with the basic information and move into levels of greater detail with every lease document, each tenant in the mix, and cash flow opportunity.

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A Proven Blueprint for Assessing Tenant Needs in Commercial Property Leasing

When it comes to taking an inquiry from a tenant in commercial real estate, it pays to have a comprehensive checklist or process to support questioning and to track the requirements of the tenant.

So every property inquiry is likely to be quite unique given that every business and corporate tenant will have special factors of occupancy to take into account; every enquiry should be matched to the required property across a number of criteria.

Here are some ideas to help you determine exactly what the tenant is looking for:

  1. Before you say too much and give away valuable listing information, understand exactly who you’re talking to, get their contact information, and ask plenty of questions to understand how they have reached the point of calling you.  Sometimes you will find that the inquiry is actually being made by another agent or broker within your town or city.  It is questionable in that case whether you would tell them too much about the listing.
  2. If the person approaching you will not share their contact details and property requirements openly and honestly, then it is best to restrict the information that you provide across the telephone.
  3. Find out if they have been inspecting other properties locally with the other brokers and agents.  That fact can frustrate your discussions, negotiations, and property introductions.
  4. If the inquiry appears genuine then it is time to arrange a meeting, and potentially an inspection of the property.  The ‘face to face’ process in our industry is really important.
  5. The tenant may be operating a business in another location.  You can inspect that other property to understand space requirements and fit out design.  You can also understand how they interact between business units.
  6. Ask the tenant about their customer interaction and resource requirements.  Both of those factors are likely to impact property choice, design and location.  They also may create special needs when it comes to car parking, property exposure, and the future need for expansion or contraction.
  7. The services and amenities in any property will be of interest in a lease choice or tenant negotiation.  Find out what the tenant needs when it comes to communications, access, power, water, gas and air conditioning.
  8. The quality of property will impact design and layout.  That will also flow through to environmental efficiency, and building operating costs.  A landlord of a property today should be very careful when it comes to property outgoings.  Excessive outgoings are likely to deter or derail a lease negotiation.
  9. Rental and outgoings budgets should be questioned and understood as part of taking the property inquiry.  Some tenants have unrealistic expectations of just what they can get for the rent to be paid, when it comes to property choices in certain areas or locations.

So there are some specific things that you can question and resolve as part of taking any leasing requirement or inquiry.  Be prepared to drill down on all the right facts before you arrange a site inspection with any tenant.  Qualify the tenant for the listing or the inquiry in a comprehensive way.

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Key Performance Indicators in Commercial Real Estate Leasing

The commercial real estate leasing market will change throughout the year based on business activity and sentiment.  For this reason you do need to set some performance indicators that will help you understand where the market is changing and what tenants are looking for.

A successful commercial real estate leasing executive will support the property management division and the sales division within the same business.  There should be a strong integration between the leasing activities of your top leasing people and the other divisions of your business.

Every property type is unique and special when it comes to leasing.  Special skills are required when it comes to the differences of property types including industrial, office, and retail property.  Specialization on the part of each individual leasing executive will help attract the clients to use your agency services.

Top leasing agents provide specialist leasing services and are known for that skill.  They help clients with strategies including the following:

  • Vacancy management
  • Tenant sourcing and selection
  • Lease terms and conditions
  • Tenant retention
  • Outgoings recoveries
  • Vacancy minimization
  • Project leasing
  • Renovation and relocation strategies
  • Tenant mix and tenant clustering
  • Rental strategies and rental types

So an expert leasing operative should understand all of these factors and provide specific solutions to the clients that they serve.  There is no point wasting this knowledge on a small and below average property; aim for the top of the market and the quality properties that need top servicing.

Some top agents choose to work with leasing understanding the opportunities that they will get in sales at a later time.  The strategy is wise and does have rewards over the long term.  The landlords of today with a leasing requirement will be the property owners of tomorrow seeking to sell their asset at a reasonable price.  That being said, the strategy behind every lease should be an enhancement to the physical function and sales opportunity for each property.

An average and generic lease will do nothing for the future sale of the property.  True commercial and retail leasing specialists really do understand how to structure a lease and make it attractive to the future of the property and of benefit to the property owner.

Leasing specialists should look to the market regularly to understand the opportunities coming from the business community and the property investment community.  These are the indicators to monitor:

  1. The supply and demand as it impacts particular property types
  2. The levels of market rental that are being achieved across the various categories of properties
  3. The time on market applying to vacancies locally
  4. The lease standards that are expected on the part of landlords when it comes to a new lease structure
  5. The incentives that are in the market today to attract new tenants
  6. New property developments that could have an impact on existing occupancy rates and tenant movement
  7. Vacancy rates that exist now in the market and the trend upward or downward
  8. Business sentiment as it relates to property occupancy costs and relocations
  9. The improvements, services, and amenities that tenants are looking for in a new lease

These indicators will help you with identifying and tracking future leasing opportunities.  Get to know all the businesses in your local area and you will soon see the relocation opportunities and leasing fees that exist.

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Commercial Real Estate Agents – Franchise Tenant Opportunity Today

In commercial and retail property today, franchise tenancies are a significant opportunity for you to work on.  Franchise tenants know exactly the property types and locations that they require to make their business model work.  You simply need to know their needs and then find the required properties.

The good thing about the franchise business structure today is that the hard work of tenant selection is largely removed.  Any tenant taking up the lease of the premises for a franchise brand, will already have been vetted and scrutinized by the franchise holder for business skill, quality, and stability.  In other words you are likely to get a high quality tenant as part of the leasing process.

It should be remembered that the franchise business agreement will run for a number of years and work in a particular way.  It is therefore a requirement that the lease to be negotiated ties into the circumstances and conditions of the head franchise agreement.  Any landlord that owns the property or the premises to be leased to a franchisee should be somewhat flexible in achieving the match between the business agreement and the lease arrangement.  The best way to handle this adjustment is to have a solicitor work on behalf of the landlord to achieve the documentation balance and parity.

So let’s go back to the point that you can tap into the leasing advantages of a franchise business today.  Many of them require premises to operate from.  All of them will have studied the local area to understand where the best locations are for their product and or service.

Here are some ideas to help you establish the right communication links for future leasing opportunity with franchise groups:

  1. It is likely that there is a website for the franchise association in your city, state, or country.  From that website, you can usually get a list of franchise brands and models.  The list thereby becomes a cross reference for future telephone contact and cold calling.
  2. Understand how your local area, town, or city is changing.  That demographic shift will provide an opportunity for some franchise businesses.  Get the figures from your local council or municipality as to how the population is changing, where new developments are to occur, how the transport corridors are working, and what the business community is doing.  All of these things will create pockets of opportunity for franchise businesses.
  3. Check out the other franchise tenants that are already located throughout your region.  They will have competitors operating within a similar product or service.  Talk to the competitors in each case to see if they would like to enter the region and tap into the local business opportunity.
  4. When it comes to retail premises and shopping center properties, some locations are well suited to the franchise business model.  Talk to the shopping centre managers and landlords to see what future leasing needs they may have.  You can then judge how that will suit the franchise operators or tenants that you have been talking to.

These four things give you specific leasing strategies to work on.  It is a particular business approach given that the franchise tenant and the business model are quite unique and special.

When you have established the right levels of communication with these franchise groups, you can identify the right locations, properties, and leasing circumstances that allow their operators to be successful.  Over time this can be a highly prosperous arrangement.