Any commercial property landlord today will have concerns of tenancy mix and occupancy. The landlord will not usually want a vacancy to occur in a property, or suffer a substantial loss of income from a protracted vacancy. So what can you do with this problem? You can establish a tenant retention plan for the property, and it can become part of the annual business plan for the asset.
Tenant retention is simply the process of retaining your good tenants and removing your underperforming tenants from a managed property investment. When done correctly the process can enhance the income for the property and the overall investment for the long term. This then helps the sale of the property if and when it is to occur.
How Do You Get Started?
So how can you set up a tenant retention plan and what are the rules? Over time you can set up your specific plan for your property and landlord, but to get things going here are some tips to build the first tenant plan and start the process.
- Tenant retention is a specific process of a quality commercial or retail property management process. It is necessary that you look at all your tenants in the property today and decide just who the good ones are and who are the ones that you really do not want over the long term. What are your reasons for selecting tenants in either group? You will need some rules to help you choose.
- Respecting the terms and conditions of the existing leases you can manage the poor tenants out of the property at end of their leases; the object being here to offer the space to other existing good tenants in the property, or find new tenants to fill the void. Given that this is a critical process that will impact the income for the property, it should be a factor of consideration each year as you revisit the business plan for the asset and the landlord.
- Set some target market rentals that should be used with new tenants to the property and or existing tenants when they renew their occupancy. Get a property valuer to help with the setting of the right market rental benchmarks. Give due regard to gross and net rentals, plus required incentives to encourage a tenant to take out a new lease.
- Establish a standard lease for the property to control the terms and conditions for the property each time you do a new lease. The standard lease should match the specifications of the property and the investment needs of the landlord. A solicitor should help the landlord with this document.
- Monitor all existing leases that are coming up for rent review or expiry inside of the next two years. As the dates draw nearer, the negotiations can start based on the tenant retention plan and the property decisions already made.
- Check with all your good tenants frequently to ensure that they are happy in occupancy and that they are not under pressure for expansion or contraction. If they are, then you want to be working with them on that as early as possible before another landlord offers them another tenancy space elsewhere.
A tenant retention plan is a good strategy for any landlord or property manager. It sets the scene for a controlled growth of property performance for the landlord.
When inspecting commercial property with a prospective tenant you will need to give the person concerned a package of information that outlines the property detail. The contents and comprehensiveness of the presentation packet will assist you greatly in converting the deal to a successful lease. So let’s give some thought to the contents of that ‘packet’. We have put these separate matters in a logical order that is common in the market place.
- Covering letter – This needs to summarise all previous conversations that you have had with the decision maker. It will thank them for letting you serve them with their leasing needs and it will then detail your understanding of the occupancy needs. From that point you can overview the properties that you are to take them to and let them inspect. Your reasons for showing them these particular properties should also be given.
- Map of the area and greater region – Maps are always of high value in the inspection process. You need to give maps of the immediate region of each of the relative properties to be inspected and also a map of the greater region showing transport corridors and key points of business geography such as city centres, main roads, and railheads or airports.
- Locate the properties – On your regional maps ensure that you highlight the location of the properties that you are showing. Some prospective tenants do not know where they are in relation to other parts of the town or community.
- Property review information sheet – As the name suggests every property must have a property information sheet that is carefully constructed with key property information. Given that properties can be of different types such as office, retail, or industrial, the property information sheet will be adjusted with the relevance to suit. This will include:
- Buildings name
- Area detail (site and tenancy)
- Asking rental (for the specific space plus any supplementary rentals such as signage, car parking, storage)
- Outgoings applicable to the deal
- Asking lease term
- Map of the property or tenancy
- Photographs of the property inside and out
- Floor plans of the space available for lease
- Details of council zoning that effects building usage
- Building detail to suit property type (floor loadings, height of warehouse, span detail in warehouse etc)
- Car parking detail and access points (plus a plan of the car park)
- Access detail and transport systems or corridors nearby
- Improvements provided in the premises for the occupants (carpets, walls, floors, fitout configuration, electrical supply, air conditioning layout)
- Services in the property (power, water, communications, lighting, air-conditioning, cleaning)
- Amenities provided for occupants (car parking, showers, tearooms, toilets, common areas)
- History brief of the property (this is general information on the age, architects, engineers)
- Demographic overview of the region
- Profile of neighbouring properties
- Sample draft lease document – This is not always provided at the first leasing inspection with the tenant, but it is helpful to be able to go through the general terms of the lease with the prospective tenant. This says that you must feel comfortable with knowing how to quickly scan through a lease and look for key issues to answer simple and focused questions from the tenant. Detailed lease questions are best referred on to the solicitor acting for the landlord.
- Inspection tools of trade – In any inspection you should carry the essential tools of trade to deal with any simple questions. These tools should be in your motor vehicle and easily accessible.
- Measuring tape (up to 10 meters)
- Measuring wheel (for large distances)
- Laser pointer (to illustrate points of interest in the inspection)
- Laser measuring device to measure rooms and internal space or height (you can get these from any large hardware store)
- Camera (to record matters of interest or questions from the tenant)
- Note pad
- Mobile phone (so you can call the office or the landlord if needed)
- Dictaphone for general notes during inspection
GOLDEN RULE: In any inspection of a property should you have any doubts or questions in your own mind regards a request for information from the tenant, do not ‘guess’ your response. Always suggest that you will get the full and correct answer that the tenant needs, and that you will come back later that day in writing with the relevant information. Legal action is not uncommon in the industry for things that have been said without due care.
BUSINESS COURTESY: After all leasing inspections are undertaken send a simple letter or email to the prospective tenant to thank them for their interest and suggest that you will be happy to help them with any further questions that arise. Also drop a note off to the landlord summarising the inspection and the outcome to date.
RECORDS: Keep separate written notes after all inspections with each potential tenant; it is surprising how this helps when you have premises that are attracting great interest from the market. Whilst it should go without saying, all prospective tenants must get entered into the office database after the inspection so that you can optimise the enquiry on other premises if necessary. Most tenants look around the market for only a short time (less than 2 months) and then make a new occupancy decision.