How to Counteract on Vacancy Threats in Commercial Leased Property

multiple tenants in commercial real estate

In every commercial or retail property you have to watch the vacancy levels in the asset and formulate plans early to resolve or counteract vacancies that may be coming up.  The landlord as your client does not need a declining income return or a threat of increasing vacancy.

What can you do?

So you have some work to do here.  Professional leasing services in brokerage are quite special when you are working with the higher value clients for your town or city.  How can you help them with this leasing challenge?  Think about these things:

  • Lease dates – Understand how the various leases in the property interact on a date by date perspective. That is the dates of expiry, option, rent review, and renovation.  All of those dates should be tracked and actioned.  They are critical dates that can have a major impact on the overall property performance.  Act early on those dates.  Give your client clear recommendations on those dates as early as possible in the lease tracking process.
  • Business planning the asset – Every property with multiple tenants in occupancy should be controlled in a business plan that is updated each period of 12 months. You can then prepare the property and the client for upcoming known pressures of lease or tenant change.
  • Tenant retention plan – Some tenants should be retained in the asset for as long as possible. You may have to move them around to better locations in the asset as part of retention, but tenant movement is a good thing.  That is what they do in a retail shopping center to retain the better occupants and retail offering.
  • Permitted uses – Each lease will have a control factor called ‘permitted use’. It will be the offering or the business activities that the tenant can undertake in the premises.  If you want to revitalize the tenant mix, a review of the permitted use will be a possibility.  You can merge that concept into the business plan for the asset.
  • Regular tenant contact – Talk to your tenants often to prevent them from looking at other properties and locations as part of their business improvement model. If your tenants have problems of occupancy, help them deal with that.
  • Tenant choicesChoose the best tenants for the property and the location. Understand the differences of anchor tenants and specialty tenants in the asset and how the lease terms and conditions should differ in each case.  Protect your stronger tenants and keep them in the asset through proactive lease responses and planning.
  • Better tenant mix – You can cluster your tenants in any large property to create customer interest and to improve tenant interaction. In any large property the clustering process is very valuable as an asset control strategy.
  • Early lease negotiations – Don’t get too close to a lease option or expiry date without starting negotiation. The only reason you should delay an issue of that type is if you have issues with a particular tenant and want them to leave or relocation.  Lease decisions are strategic. Reduce the threat of vacancy.
  • Incentives for sitting tenants – Give your tenants reasons to stay in the property. Offer incentives that are of benefit to the tenant for the longer term.  A happy tenant is likely to stay with you for years, as long as you help them with their business pressures.

So all of these things are positive strategies to implement in a lease management plan.  Ultimately that allows you to control vacancy threats and income performance.  Create the lease formula that helps your clients and their asset performance over time.

(N.B. these ideas are also sent out to regularly to our friends in Commercial Real Estate Online Snapshot to help amplify brokerage results…. Get your access here)

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