In commercial and retail property performance, your rental is foundational to the results that you seek for the investment. The rent must be protected from volatility. That’s where professional property management and leasing skills have a role to play.
It is a fact that some property owners self-manage their assets; that is generally a poor choice or strategy. Whilst that approach may save some money in management fees for the owner, the savings created are a poor compromise for the low levels of asset performance that usually result.
If you own a good quality property of any size, it should be carefully leased and managed to a plan thereby achieving all the following:
- Income or rental stability given the existing tenant mix and property configuration
- Vacancy minimization
- Tenant retention for your better tenants
- Risk controls and management
- Lease management and supervision
- Expenditure controls and payment disciplines
- Emergency responses in time of crisis
These things lead to income stability and protection. It should be said that a professional property management agency will have specialized people that understand these things, and they will also have the established systems to optimise a managed property.
Protecting the Passing Rent
So, let’s look at income a bit deeper as part of the leasing and management process. To protect the income of the property and therefore the collected rent there are things to specifically look at as part of the process. Here are some of the main issues to optimize:
- Rent review negotiations – if you have a market rental condition in your lease rent review clauses for any tenant, then the negotiations of that market rent need specific preparation with the gathering of comparable information. It is very hard for a landlord to get that information together given that they usually only know one property locally; they don’t have access to other property negotiations in the area. Preparation is the key to completing a market rent review successfully for an asset.
- Arrears management – there will always be rental collection problems at some stage within a tenant mix and property. Those arrears should be managed and minimized with due regard for local property laws, the lease, and the parties to the occupancy. It is very easy to do the wrong thing in chasing down an arrears matter. The legal process will check and challenge everything in an arrears dispute. It is not uncommon for a landlord to lose a legal dispute on arrears, simply because the wrong steps to the recovery process were adopted. Legal assistance is valuable with any arrears matter in a property and with the tenants in occupancy.
- The timing of option negotiations – some landlords don’t like lease options, because it restricts the future choices that the landlord has with the property over time. It can be said that a high-quality property in a prime location should just be leased for initial periods of time. Options should not be given to the tenant as part of the initial lease negotiation. When the lease is coming to an end, the question of the tenant being given a new lease can then be considered individually by the landlord considering the condition of the property, the market, and the investment targets.
- The selection of tenants for the mix – when you take a deep look at any property in each location, it is easy to see that certain tenant types should be chosen for occupation. They are the priority tenant types that match the demographics of the area. Those tenants can thrive in occupancy and therefore help stabilize the asset as an investment.
- The placement of tenants in a property – with a larger property with multiple tenants in occupation, some of those occupants should be placed into property zones that support both the business, but also the surrounding tenants. That is why a tenant retention plan is very powerful in planning property performance.
These things are supported by a professional property management and leasing service. These points of focus also help considerably in protecting rental cash-flow and investment stability. If you are owning a good quality commercial or retail property, consider outsourcing your property management requirements to a professional local agent that understands the zone, the property type, and the tenants.
Written by John Highman, Specialist Senior Commercial and Retail Property Agent Brisbane and Qld – Ph 0417221108