Posted on

Commercial Property Management – Rental Growth Strategies

When it comes to managing commercial and retail property, it is very important to optimise the income for the landlord.  The income for the property should be looked at both individually with separate leases, and across the entire property and the tenancy mix.

At the beginning of every financial year, there should be some form of budget created for the tenancy mix and the potential property income.  All of the leases currently existing will have rental strategies and rental increases to merge into the income budget.  This income budget can be incorporated into the business plan for the property for the upcoming year.  The best time to do the budget is in the months of April and May, just prior to the beginning of the financial year.

Here are some tips relating to income optimisation in commercial or retail property management:

  1. Always allow for some measure and method of adjustment given that the property market is always changing in your local area.  When you set a property income budget, it should be reviewed on a monthly and quarterly basis.  Any established trends in the local area should be tracked and then be used as a form of rental adjustment for the landlord if those trends are firm and established.
  2. The vacancy factor in your local area will change based on the supply and demand of available property.  To monitor this process, you should track down the changes to the property development plan in the region.  Look for any new developments that could have an impact on your property.  Those new developments will have a timeline of construction and occupancy; it is likely that those developers will also have an allowance for rental incentive to attract tenants into their property.  That incentive will have an impact on your property leasing strategies.
  3. Market rentals will change from time to time.  They do not always go upwards, and more commonly will stagnate or slightly reduce when the property market slows.  To help you with the levels of market rental, you will need to understand the impact of incentive in the market rental structure as it exists today.  If an incentive exists in any market rental negotiation, it creates what is called a face rental.  That face rental will be discounted by any property valuer back to a level that is truly aligned to the effective rental and the market.  Incentives create a false level of rental.
  4. Business sentiment will change from time to time based on the local and regional economy.  Some business segments and business types will be more active and successful than others.  Track those business segments and monitor the needs for property change or occupancy.  Some of those tenants could be relocated to your property if the opportunity arises.
  5. Existing tenants in the property should be categorised into long-term tenants and short-term occupants.  Some tenants will be more attractive to the landlord and the performance of the property over time.  They may have a tenancy profile or business identity that encourages other tenants to the property.  Reviewing the tenancy mix is called tenant retention.  You can create a tenant retention plan as part of your business planning model.
  6. Pressures of expansion and contraction will change from time to time with all other tenants in your tenancy mix.  Look for those changes, and keep close to those issues through the business year to identify any pressures of change that may need to be accommodated in the building.  It is better to have a tenant in your property that you understand and appreciate, than find a new one that is unproven and costly in occupancy changeover and leasing costs.

The income for a commercial or retail property can be enhanced when you fully understand all of the above factors and adjust the property accordingly.  It is not unusual to adjust the business plan or for a property three or four times during the financial year.

If you would like to get more free tips on commercial property management you can get them at our website http://www.commercial-realestate-training.com/

Posted on

Commercial Property Managers – Strategies to Improve Commercial Property Income

In commercial property management, the process of income improvement is fundamental to the performance of the asset for a property investor.  There are many ways the income for a property can be improved; the greater number of tenants in a property, the easier the process is.  If you have a single tenant, then your options are limited.

When the property market is slow and tough, the income from the property is more important than ever before.  The basic rule is to minimize the vacancies within the property and to optimise the occupancy given the available tenancy space.

Here are some further ideas for property managers to improve property income for the landlord.

  1. Selecting the right tenants for the property will always be an important factor in the leasing strategy overall and the property management process for the property.  In an ideal world, you want tenants that can bring you both stability of occupancy and good business profile.  High quality corporate tenants bring an identity to the property that may also attract other tenants to your other vacant tenancies if and when they arise in the same building.
  2. Rent review terms and conditions are created in and from the initial lease negotiation.  To a degree, they will be shaped from the pressures of the particular lease negotiation.  The lease negotiation will then be influenced by the prevailing market conditions.  All of that being said, the rent review terms and conditions should be suitably shaped to improve the landlords position and rental income.  Many agents and property managers choose to use or negotiate a rent review profile for a lease that is indexed to the growth in CPI.  In most cases, this process only has benefit to the tenant given that the rent increases in a limited way.  It is better to target rent reviews that are established to a more substantial rental increase for the landlord; that can be through a fixed percentage increase, or a fixed amount increase.  Market rent reviews are also useful and worth considering, although it does depend on the property, the location, supply and demand of vacant space, and the prevailing market conditions.  In the case of a property that is only average in location and presentation, it is better to choose less market rent reviews and more fixed increases.  The income from the property is therefore more predictable.
  3. Options are useful when considering the leasing of a property.  It is always wise to remember that lease options will tie the property up for a number of years beyond the initial term.  Options for renewal can remove some elements of control from the landlord, and on that basis they should only be used where the landlord feels totally comfortable with the process of giving the tenant an option for a number of years. In older properties that face redundancy this can be an issue.
  4. Extra rental areas can occur in any building.  They may be created for storage, signage, and the use of special areas in the common zone of the building.  The extra rentals may be established on separate licence documentation.
  5. Vacant space optimisation should always be considered.  A creative property manager or leasing manager will look at the variations of occupancy and how vacant space can be fully leased at a top rental.  Other tenants in the property may be candidates for taking up vacant space if they need to expand.
  6. Tenant retention plans will help you keep the right tenants within the property.  You will also help you identify those tenants that should be moved on at the end of lease occupancy and expiry.

A commercial or retail property today requires creative thinking when it comes to income optimisation.  There is a fine balance between charging too much rental and charging the right rental.  If the balance is not achieved, you can finish up with excessive vacancies within the property and a lack of potential tenant enquiry.  This is where an experienced property manager or leasing manager can provide the knowledge and experience to a landlord.  Watch the property market and the properties that you compete with; the tenants that are out there are doing the same thing.