In today’s commercial property market, the tenants in your local area will tell you a lot if you ask the right questions. For that very reason you should merge local tenants and businesses into your prospecting activities.
Any local building with multiple tenants should be merged into your call canvassing program. Providing the owner of the building is not a client of your agency through some other business relationship, there is great advantage to be had by calling down all the tenants on a regular basis.
You can ask the business owners and managers questions such as:
- Do they own the property? Property ownership may be an opportunity for a sale and lease back at some stage in the future.
- Do they lease the property? If that is the case they will have lease change over issues and lease expiry dates coming up. Most tenants have no idea about the availability of leased premises in the local area or the current market rentals.
- When will their lease expire? If you know this date you can provide market information to them in the year leading up to the lease expiry. They may be prime tenants for relocating.
- Do they have local storage needs? Existing businesses can sometimes be under some pressure to expand storage or relocate staff into nearby local properties. Ask the questions to see what pressures of occupancy may exist.
- What type of business are they? This will have bearing on the type of property and the improvements required in leased occupation.
- Some businesses have a significant lead time to relocate given the way in which they operate and the plant and equipment that they may use in that business process.
- What labour force requirements do they have? The location of the business should be convenient for labour sourcing and access.
- Some businesses need to be near public transport or have a significant onsite car park for staff and customers as part of business operations. Find out what the business requires in case a special property in the local area could come onto the market one day.
- Ask the business owner about the landlord of the property (if they are a tenant). If you can identify the landlord, you can approach them at a later time regards leasing and property requirements.
In addition to all of the above, the tenants know a lot more about the local area than you do, and the right questions about other businesses in the street may very well turn up a property opportunity.
The best way to gather this information is to call by local businesses on a daily basis. It takes time, but if you do between 5 and 10 a day, you will get valuable leads to work on.
When it comes to leasing a retail property, the leasing specialist must be a real expert in the retail property type and the strategies behind tenant selection and tenant mix. In a retail property today, it is not simply a matter of finding a tenant and creating a lease; the right tenant must be found for each and every property. Many variables come into consideration.
A well selected tenant for a retail property will do a lot for the factors of property function and performance including:
- Underpinning market rental for the landlord and as an investment property
- Minimise vacancies in the property for the long term
- Build on the success of tenants in the property so that the investment property can be expanded or sold on at a reasonable capital gain
Given all of these above factors, a retail leasing ‘expert’ is a special person that understands the leasing process and retail property performance to a high level.
Here are some factors that can help you in gaining this level of retail property expertise:
- Retail leases are documents that are built around strategy of rent, lease terms, and tenant mix. In many respects, you do not want one lease to negatively impact the occupancy of tenants around it and in the same property. That is why knowledge of tenancy mix becomes so important.
- Rent levels and lease incentives will change throughout the year given the overall location and the property type. Monitor these changes and watch the rental levels.
- The levels of tenant enquiry will change during the year. Some of that enquiry is quite seasonal and should be identified as that. It may be that a property should be leased at a particular time of year as opposed to a time when the market may be slower given sale or market trends.
- In retail property you should watch for other property developments that are soon to be coming on the market. They can have a major impact on rental or incentives that are being offered. In many respects those other properties will be attracting some of your tenants to relocate.
- Franchise tenants are becoming an important part of many retail shopping centres and the particular tenant mix. In many respects, particular franchise tenants will be very desirable for certain retail properties. Get to know the franchise tenancy groups that operate in your area or that could require new premises in your area.
- Anchor tenants are an essential part of the structure of a major shopping center. They also have a role to play when it comes to smaller retail shopping centers and neighborhood centers. The selection of the anchor tenant will be based on the demographics of the local customers visiting the property.
- Tenancy mix strategy will vary from property to property. The age of the property, the existing specialty tenants, and the intentions of the landlord will all have impact on the tenancy mix. In many respects, the proximity of one tenant to another in the same property could have major impact on the stability of the market rental, the sales for some of the tenants, and the visitations of the customers. Clustering is a factor that applies when it comes to retail tenancy mix. Some tenants in a cluster can enhance the sales of nearby tenancies. That is how strategy and tenancy placement comes to the fore.
Retail property experts and leasing specialists tend to understand the leasing process very well and can analyse the performance of the property from that.
When you as a retail leasing agent are to lease a retail property, the terms and conditions of the negotiation will involve more things than a standard office or industrial property to lease. That is because the typical retail business will have factors of trade and opportunity to consider.
The typical tenant will want to know all the factors of the property before the lease negotiation will become real and relevant.
You will need to tell them about the ‘big’ property issues that impact a retail tenant including:
- How the property operates and how it is maintained
- The prevailing vacancy factor in the property and how it is likely to change
- The profiles and trade of the existing tenants (suitably generalised for confidentiality)
- Who the landlord is and what their targets are
- How the anchor tenant (or tenants) benefits the property
- How the existing tenants specialise and attract customers to the property
- What the levels of asking rent and outgoings are for the property
- Where the competing properties are and how they impact your property in the sense of trade and customers
Could a poorly managed retail property with a landlord that is income focused, ‘wreck’ a retail shopping centre tenant mix? The answer is certainly ‘yes’. Some landlords do not have a real appreciation of the retail trade process and priorities. Retail property investment, leasing, and management are really special parts of the property industry; they are not for ‘first time’ investors.
As a specialist retail leasing agent you could find some ‘retail landlords’ are quite inexperienced when it comes to the performance of a retail property. If the landlord or property investor has just ‘graduated’ from industrial or office property investment, they will require some education when it comes to the dynamics and functions of a retail property.
Links and Relationships
In retail property, everything is linked, and a weak link in the chain of relationships can threaten the success of the property. Here are some of those relationships.
- The anchor tenant attracts customers to the property. What are the intentions of the anchor tenant? How are they trading now? How do they interact with the specialty tenants?
- The speciality tenants support and grow the attractive nature of the retail property to the customer base. Are those speciality tenants successful now? Are there any problems in the tenant mix that should be addressed?
- Has a customer survey been done for the property and what are the factors of property function that were identified?
- The trade or success of the tenants will underpin the level and sustainability of the market rental for the property. The landlord for the property should encourage the property profile and marketing processes so the tenants can be successful.
- The well managed outgoings for the property are a part of the tenants occupancy cost. The outgoings should support sustained successful trade and not become a burden on a struggling tenant mix.
- Is the property marketed into the local customer base and demographic? If so, is that process successful and should it be reviewed?
- How the property is maintained now, and is there any need for property change or upgrade? That will include expansion, contraction, and refurbishment.
The proprietor of the business entering the property as a tenant is going to need to understand the functions of the property, the landlord, and the customer factors of the local area. Shopping centres are very unique, and the way they are managed and operated will have a great impact on the customer base and the tenant mix.
When it comes to the leasing of commercial property, you as the commercial real estate agent really do need to understand the trends of the local area. It really does not matter if you sell, lease, or manage property as the main part of your job; you still need to understand how to lease a property and how that lease can improve the sale or the property performance.
The clients that you work with will expect you to bring significant local market knowledge to their needs and opportunities. That local knowledge will also need to be very apparent in your sales pitch and presentation; you want the client to listen to you.
It is a fact that many agents are far too general when it comes to the initial presentation to the client of the available services and solutions for their property. Being specific to the property helps the clients really understand the relevance that you bring to the property requirement.
Leasing is one of those disciplines that will eventually create a property sale or a property management opportunity. That being said, a commercial or retail leasing specialist should be suitably versatile to talk about sales opportunity and property management strategies as well. One commission opportunity will turn into several over time.
For a commercial real estate agent to be of any relevance to the client that they serve, they will need to have a toolbox of strategies to implement for any particular client or their particular property. Those strategies should not be generic, because the client is likely to be seeing a few agents before they make a selection on what agent should get their listing.
Here are some factors for commercial and retail property agents to optimize as part of their services and solutions for clients:
- Get to know the rentals in the local area as they apply to the different property types. There are differences between gross and net rental when it comes to different property locations and property types. In some leasing circumstances you may use a net rental strategy, whilst in others you may use a gross rental strategy. Either of these choices will have impact on the rent review process that you negotiate for the particular lease.
- In any particular property market is very common to have a variety of incentives available to new tenants. The size and type of that incentive will change from time to time based on the supply and demand of premises locally. When there is little vacant space available for new tenants to occupy, it is likely that the incentive will diminish or even disappear. That will only remain the case when demand for premises exceeds supply. Over time you will see new property come into the market through fresh new property developments; the leasing leverage that each landlord creates in those circumstances will be that of an incentive. As the local property expert, you need to know the incentives that are both available and sensible for any particular property that you could be leasing. Compare those incentives to other properties nearby and in the general property market. Offer the landlord some alternatives when it comes to those incentives and how they match the needs of that tenant enquiry that you know exists currently.
- When it comes to establishing a new lease, it is best to have some regard for the existing tenants in the current property and their proximity to the current vacancy. What you want to do here is spread the risk of any vacancies occurring in adjacent premises. In other words, you want to minimize the chance of multiple vacancies occurring at the end of lease terms at about the same time. The only reason you would have any adjacent vacancies occurring would be in the circumstances where a renovation or relocation strategy was required for property improvement.
- The operating costs for the property (the outgoings) that appear in any lease negotiation should be acceptably similar to those which apply in competing properties. If your property outgoings levels are too high, then it is likely that the vacancy will remain difficult to lease. On this basis it pays to understand the levels and types of outgoings that are available and charged in competing properties in your area. There is a large difference between the outgoings or operating costs charged for a retail property, and industrial property, and an office property. Generally speaking the outgoings for a retail property are far higher than those that would apply to office property. Similarly, an industrial property is at the bottom end of the outgoings scale in occupancy cost structure.
Get to know your local property market comprehensively and thoroughly. Properties will come and go in the area from time to time, and some rental or lease transactions will occur.
Get to know the actual rents that are achieved from the particular lease deals as they are the rents that are acceptable to the enquiring parties in today’s market. As part of this process, stay abreast of the future new property developments that are coming into your region and that could have an impact on the supply and demand process.
If you are starting a commercial real estate business or perhaps you are to be working in one as a salesperson, the key to building brand and identity is in getting lots of signboards into your territory and onto the best listings. Your name is everything when it comes to finding and converting the business. People must know you as a local property expert; signboards give that perception.
Whilst this may seem a bit obvious, the fact of the matter is that it is largely overlooked as a base strategy in building market share.
Signboards on property listings are the cheapest form of advertising, and yet the most effective in your local area. Given that most of your sales and leasing deals will come from your local area, the signboards are really important.
So what can you do to start a signboard strategy? Try some of these:
- When you get an exclusive listing, make sure that you also get vendor paid advertising and place a very good signboard on the property.
- Target the quality properties in your area that really drive the enquiry. When you attract the enquiry from the market, you can convert more of the deals.
- Look at all the redundant properties in the area that could be prime spots for redevelopment. Identify the owners and see if a project can be possible in the site. Project sales and leasing brings massive market dominance over time.
- Vacant land in your area should be identified and the owners spoken to. It is likely that a signboard could be placed on the property.
- Any listings with other agents that have been on the market for some time are likely to come up for expiry soon. Talk to the property owners to see if they are receptive to another agent taking over the listing.
- Should you take on ‘open listings’? It is a hard question to set a fixed answer. Over time you should eventually avoid open listings as they are largely uncontrollable stock and the clients are hard to work with; essentially they will listen to and work with any agent that spins them a story. Desperation does not drive your market share.
- Maintain your signs with a signage upgrade strategy so that the signs are replaced and freshened up monthly. In this way they will send a quality message to the local property owners and business proprietors. There is nothing worse than a faded, neglected, or graffiti covered sign on a property.
Your property market opportunity will be built on solid foundations of action and planning. Nothing of relevance comes from random focus and action. Start your planning process and build on the steps that you need to take.
If you want more tips on commercial real estate, you can get them in our Newsletter on this site.
It is an interesting fact that most property solicitors acting on behalf of a client in a leasing situation will never really visit the subject property to understand the factors of occupancy and property performance. They simply create a lease based on previous standards and their experience as a property solicitor.
This is not to say that solicitors don’t know what they’re doing, but it is to suggest that some solicitors need to take more time in understanding the properties that the client owns. Every property should be regarded as unique and different. The factors of occupancy that apply to each tenancy can be quite specific.
Here are some factors that would apply to a standard lease situation:
- Decisions need to be made regards the rental type to be used in the lease. The rental type could be either gross or net, and that will have impact on the recovery of outgoings for the landlord.
- The the amount and recovery of outgoings in the property will change over time given the age of the premises and the value of the property. The lease document needs to allow for these two factors.
- Each vacant space will have unique factors of presentation and remediation. At the end of the lease there will also be issues relating to the making good of the premises. The make good clause should specifically talk to the factors that the particular tenancy and occupancy create.
- In every lease occupancy, careful consideration should be given to the time frames that apply to negotiating rent reviews and lease options. Both of these issues create critical dates that will need action and response by the landlord and the tenant. Failure to act and respond by those critical dates can expose either of the parties to unnecessary risk and obligations.
- The duration of a lease will have a direct relation to the cash flow for the landlord. In a property with multiple tenancies, there can be a potential threat of vacancies occurring at the same time in close proximity to each other. Excessive vacancy in the one property and at the same time, can frustrate the leasing process, increase vacancy downtime, and increase the financial impact of incentive on the landlord.
- Incentives are usually required for the leasing of premises to new tenants. That being said, the landlord needs to discuss with their solicitor the best types of incentive that will suit the property and the investment over time.
So there are a number of factors to consider when it comes to leasing vacant premises. On that basis the landlord should be encouraged to select the correct solicitor who has the time to investigate the attributes and pressures that apply to each particular property. In that way the landlord will get a lease that clearly matches the investment cycle and the cash flow that they require. This will also help the commercial property agent when it comes to lease negotiation with potential new tenants.