A Simple Custom Designed Tenant Mix Strategy in Commercial Investment Property
In commercial and retail property management today, it is essential that you have a custom designed tenancy mix review process underway.
In any complex property with a number of tenants in occupation (i.e. Retail Shopping Centres or high rise Office buildings), that tenant mix process should be unique to the building taking into account the building vacancy factors, leasing strategies, investment requirements, and the tenants within the mix.
If you manage a lot of buildings with single tenants in occupancy (i.e. Industrial property) then the processes of tenancy review are perhaps somewhat easier and simpler, although the same principles of tenant selection, and rental income growth still apply.
The right tenants should be chosen for each property to improve occupancy and cash flow for the longer term; leases should be negotiated on that basis. That is what property investment is all about; improve the cash flow from the rent and reduce the risk from upcoming vacancies. Help your landlord clients achieve those outcomes.
Know Your Landlords
Every landlord will have certain strategies and requirements for property investment. When you understand the landlord’s financial targets and investment criteria, you can work towards specific outcomes with tenancy placement and overall lease strategy.
In retail properties with anchor tenants, the clustering strategies around the ‘anchors’ will be important to build customer involvement and sales in the property.
Refine the Tenancy Mix
Here are some ideas to help you start to refine the property tenancy mix and undertake a full review of tenant placement and long term occupation:
- A Reliable Tenant History – If the tenant is coming to you from another property then you have the advantage of checking out their occupancy history. You may even be able to talk to the property manager or landlord of the other property to ensure that you are not taking on a tenant that has problems.
- Business type – Exactly what does the tenant do by way of business and what will they be selling and marketing from the location? Drill down on what they do and refine the description so you can put it in the lease document as the ‘permitted use’ for the property. If you have existing tenants in occupation, then make sure they are operating within the ‘permitted use’ definitions of the lease.
- Tenant viability or success – It is reasonably easy to see the differences between a tenant business that is successful and one that is struggling. If you can see problems of trade with any tenant and their business, start an interview process to see if adjustments can be made to the overall occupied space to reduce rental obligations. It is sometimes better to create an adjustment (reduction or relocation) to rented space than it is to fix a vacancy.
- Lease conditions – When you understand the leases in any property you will soon know that there are things that can be changed and negotiated to improve the landlord’s position from an investment perspective. Focus on rent types, incentive alternatives, length of lease, and rent review alternatives.
These simple things will help you start your custom designed tenant mix strategy for your landlord client and the properties that you have under management.
Remember to change the mix of tenants often in a shopping centre as the property ages, vacancies happen, and economic cycles affect the tenants.
