Posted on July 9, 2012
In the management of a retail shopping centre or retail mall, the retention of tenants becomes a critical component of property performance. Loss of tenants creates the following pressures on the building or landlord:
- Loss of rental during the vacancy and any subsequent rent free period
- Loss of the recovery of building outgoings during the time of vacancy
- Expenditure in the creation of new leases and associated documentation
- Expenditure in the provision of a new incentive for a new tenancy
- Commission costs to the leasing agent when a new tenant has been located
Normally you would not want a vacancy to occur in your managed retail property unless one of the following situations could apply:
- The tenants are disruptive to the property and the tenant mix
- The tenants have not been cooperative under the terms of the lease
- Rental payments have been variable and unstable
- You require the premises for a better tenancy or a new tenant
- You are undertaking a property renovation or relocation plan
- You are about to embark on a new property development
So tenant retention becomes a critical factor in the normal performance and future of the retail shopping centre. The tenant retention plan can feature in the business plan for the property and should be reviewed six monthly as part of the overall leasing strategy. The leasing strategy will also include factors of tenant mix and tenant mix analysis.
Successful Tenant retention programs
The tenant retention plan should be formulated in keeping with the targets set by the landlord for the investment. Most landlords intend to keep the retail property that they purchase for a number of years and on that basis the tenant retention plans should be designed. A comprehensive tenant retention plan should include the following elements:
- Regular ongoing contact should occur with each and every tenant in the property to identify any needs of contraction or expansion. If this is not done, you will soon see other leasing agents attracting your tenants to their properties.
- Early negotiations of lease renewals or options (as the case may be) should occur in a timely way. This prevents the tenants considering a move to other locations for a better deal or lease. It should be said that relocation costs will always be a deterrent to the tenant in leaving your property.
- Assessments of the existing tenant's business performance and its relevance to the overall tenancy mix should be undertaken. In a retail property this will include sales turnover figures in the overall tenancy mix and there comparison to the particular singular tenant. Any weaknesses in the singular tenant and their business levels should be addressed early before the impact carries through to adjacent tenancy premises.
- The levels of market rental that are charged to the tenants should be fair and reasonable given the trends of other rentals in other properties. Aggressive levels of rental pushed at the time of market rent review, can destabilise the relationship between the tenant and the landlord as well as escalating the threat of future vacancy.
- It is wise to break the tenancy mix into levels of desirable and less than desirable tenancies. On that basis you will know who you really want to keep in the property for the long term.
- The strategies regards the anchor tenant occupancy will have an impact on the surrounding specialty tenancies. The expiration of the lease for the anchor tenancy should be carefully monitored to prevent any massive disruption to property occupancy and the other specialties.
- All critical levels of discussion and communication with the tenant should be recorded in writing to prevent any later misunderstandings. All ongoing matters should be followed through with the tenant and or the landlord being updated as appropriate.
A successful tenant retention program is really the result of excellent communications and timely response to any matters of property occupancy, lease management, and maintenance. The property manager is at the centre of all of these matters.
Posted on February 4, 2012
In commercial property today it is common for vacancies to develop in the tenant mix and property. This presents an ongoing problem for the landlord with the cash flow projections and income from the property.
Extended vacancy factors in commercial property are to be minimised where possible through planning and lease management. You need to know what to look for in a tenant and how to find them.
A good leasing manager or property manager will add significant value to the leasing process and the stability of the tenant mix. They have the ability to tap into the local tenant enquiry and read the requirements of tenants in this market.
When vacancies occur there are major costs to find another tenant. Here are the main ones:
- Loss of rent
- Loss of outgoings
- Costs of new lease documentation
- Costs of new lease incentives
- Commissions and fees to fill the vacancy
So how can you fix this? You can simply develop a tenant mix strategy and a lease management plan. They become a key part of the commercial property management processes provided by the real estate agency.
To implement these strategies you must know what to look for in a new tenant. The following list will help. You can add to the list subject to the needs of the property and the plans of the landlord.
- The tenant should in the first instance qualify as a stable business with an established history of operation. Get some details from the tenant regards the business history. This should be provided by the accountant acting on behalf of the tenancy.
- Talk to previous landlords from other properties that they have occupied. See if there are any problems of occupancy or defaults under the terms of the leases in the property.
- Speak to the property manager in the last property they occupied. Ideally the property manager should give you a positive assessment of the tenancy operation in their earlier lease.
- Develop a clear understanding as to the occupancy demands of the tenancy and the business. Will that business clearly fit into the property and vacancy you have available?
- The permitted use for the new tenancy should be clearly defined to specific tenancy usage. This will help you in any new lease situation or assignment or sublet.
- The new tenancy should not conflict with any existing tenants in the building. This can be by type, operation, or customer profile.
- The new tenancy and the lease term should suit the landlord's investment plans. On this basis, the term of new lease should suit the age of the property and any expected renovation or relocation activity that may be required.
- The new lease to be created should be balanced against any other lease expiry and adjacent tenancy in the same property. Ideally your new lease expiry should avoid any adjacent leases expiring at the same time; and therefore creating a heavy burden on the income for the building and the landlord.
- Get details from the tenant regards the intended fit out layout and construction. It is likely that you will require plans and drawings from a tenant to fully understand these factors. Any changes to building services as a result of tenant occupancy can be very expensive.
- It is wise to get some form of bond or bank guarantee as part of the new lease occupancy. It is common for this amount or guarantee to reflect between three and six months rental occupancy costs.
- The intended lessee for the new lease should be a legal entity that can be correctly described on solicitor prepared lease documentation.
- If the subject property is financed through a mortgagee, you may need the approval of the mortgagee to the intending tenant and the actual lease to be created.
These are some of the main issues to be considered when finding a new tenant for the property. These items can be structured into a checklist and added to as part of the lease or property management process.
Posted on January 23, 2012
The property management handover is a base by which you as the agent or property manager can implement sound property management processes and investigations. This is quite important considering that the property has been managed by others up until the handover and mistakes may or are quite likely to have been made.
Accuracy in the handover is therefore critical to stabilizing the property for the future.
Some of the biggest problems that are seen in the handover review are:
- Inaccurate tenancy schedules and tenant detail
- Lost lease or tenancy documentation
- Poorly maintained income and expenditure history of the property
- Incomplete arrears reports and strategy
- Missing landlords reports and communications
The process of property management handover is the best time to set the foundations for new property performance. Depending on the complexity of the property, a handover process can take anywhere from a few hours to a week to complete.
All documents provided and taken as part of the handover should be checked by you as the new property manager and signed for. This fact will protect you later if disagreements occur regards the things that were provided. Any comments or commitments from others in the process should be evidenced in email or written form.
There are some key processes that can be adopted in and through the handover. They are:
- Leases should be reviewed and read so that you know they are the current documents for each tenancy
- Special rights of property use such as naming rights, car parking usage, common area licences, storage, and after hours use, should be documented.
- Maintenance contracts and contractors details should be supplied. Any current ongoing maintenance jobs should be identified.
- Essential services documentation and contracts should be sourced. Check all elements of risk management that are associated with the essential services in the property.
- Tenant contact details should be checked and referenced against all the leases.
- Tenancy schedules should be checked against all the leases and licences.
- Income and expenditure activity and history should be provided for a number of years so you know what the property has been doing financially.
- Current budget detail for the property should be sourced in case it needs to be cross referenced to tenant outgoings payments, rent invoices, and arrears to be paid.
- In the case of retail property you may need to get the turnover records of all the tenants, and the customer visitation history.
You can add to this list subject to the function and demands of the property. When the handover is correctly and efficiently handled it makes your future management processes much easier.