Older commercial properties can have many issues and problems of financial performance, tenant management, and daily operation. Those older properties need the special attention and focus by a property manager if the investment is to thrive.
So what happens in older properties that can frustrate things? Generally it can be loss of rent and loss of tenants. Either way the process is financially painful for the property owner. Other leasing agents will be talking to the tenants in the building in an effort to get them to move to another property. Watch for the upcoming lease expiry dates and tenants that are under any form of occupancy pressure.
Landlords in older properties cannot ‘cut corners’ in property function or maintenance; tenants will soon see poor levels of investment commitment by the landlord and that will start the idea of the tenant moving to another property.
Focus Issues in Managing Older Commercial Properties
If you manage and lease older properties you will have some factors to understand and optimize. Here are some of the main issues to watch and track:
- Services and amenities – The property should be convenient and practical and well presented. Understand the importance of presentation and functionality when it comes to services and amenities. The age of the property will show in the common areas, toilets, and service zones. What can you do to improve these areas and zones within the building?
- Car parking – A car park in a building should be safe, secure, clean, and accessible. Can tenants and customers in the building use the car park with convenience? Do they know how to move around the car park and into the building? Is the signage and lighting adequate to help tenants and customers with car parking? If the car parking in a building is difficult, it will reflect in the ease or otherwise of lease negotiations and renewals.
- Occupancy costs – The costs to run a commercial and retail building should be managed to a budget. Over time that budget will shift and change due to the operational issues and the age of plant and equipment. You can retain reasonable control on plant and equipment costs if the maintenance in the building is kept up to date, and if the technology is kept up to date. Your maintenance contractors in the specialist services will know how to optimize plant function allowing for building use and operational demands.
- Lease expiries – Tenants will come to the end of a lease at some stage. In an ideal investment situation you don’t want too many tenant leases expiring at the same time in the one building, so you have to watch the upcoming lease issues, expiry dates, renewal options, and current vacancies. Negotiate lease issues early. The disruption to rental and cash flow at the time of any tenant vacancy can be a real challenge for some landlords; every vacancy challenge will take time and cost money to resolve. Watch all existing leases constantly for factors of volatility and change. Talk to your tenants regularly so you know how they are trading.
- Tenant movement – Some tenants will require more or less space as a result of business changes, trading, and the economy. In talking to your tenants regularly you can identify upcoming pressures where a relocation or occupancy change may be a wise move. If you have a good tenant in your building, it is better to work with them rather than loose them to another nearby building offering incentives and lower rents. Understand how the tenant operates their business and work with them when a business change starts to occur.
- Maintenance – In older properties the maintenance processes will be impacted by building age and functionality. Speak to the maintenance contractors every quarter to identify categories of plant modifications and equipment maintenance where changes are appropriate. In that way you can balance your way through risk, safety, costs, and building operation.
- Code compliances – Safety and occupancy codes will apply to all buildings in all locations. Buildings must comply with current codes of occupancy and safety. Failure to do so will see an escalation in risk and potential property damage or personal injury. The liability of the landlord will be threatened if the property fails to comply with current codes.
- Renovation and relocation strategies – In older commercial and retail buildings you will need a plan and a process for renovating common areas and leased areas. The lease documentation used in the property should be designed with clauses to help with both renovation and tenant relocation requirements. Without the appropriate relocation provisions in a lease, the costs of moving tenants around in the one property can be significant.
- Competing properties and new projects – As with everything today, new buildings locally can attract tenants away from older less technologically advanced buildings. It is inevitable that some of your tenants will move to a new project or building simply to have a higher quality of occupancy; talk to your tenants regularly so you can act on the problem early. Image and quality of occupancy can be a real issue to some businesses as they manage staff and customer perceptions. That being said, those new buildings have a different rent structure and occupancy cost; they cost a lot more to occupy. Are you offering a better value proposition for your tenants today in your building?
- Convenience and Comfort – When you compare local buildings in the categories of quality and convenience, are you offering a better occupancy experience? Is your property more convenient and comfortable for tenants and customers? How your tenants and customers ‘feel’ about your property now and how they use the property will impact perceptions; ultimately that can flow back to you at the time of leasing decisions and negotiations.
So there are things to be watched in older properties and competitive property markets. Prepare yourself for retaining your tenants and keeping the rental flowing.