leasing tips for city buildings

Action Annual Market Rental Assessments in Commercial Property Management

When you manage a commercial or retail property it pays to regularly update your client with facts on property value and market rental.  You can do this annually or more frequently as the case may dictate.

In busy locations likely that the frequency of market rental change, together with the supply and demand factors of local property will drive prices up or down.  That’s where local knowledge is so important.  As a quality property agent you can provide that by way of charts, market evidence, and comparable property lists.

Here are some ideas to bring into that market assessment:

  1. As a specialist in a property type your focus should be within the category that you know and deal with.  That makes it a lot easier to get the market trends or facts and display them.  You can also limit the zone of assessment so you are not pulling in rents and prices from too far away.  The fact to remember in commercial property is that most transactions are quite local and usually involve local people.
  2. Look at the asking rents and prices that apply to competing properties on the market currently within your region.  The asking rents and prices are not always the final agreed figures.  Listings with inflated asking prices are good examples to use in any ‘listing pitch’ to show your client how mistakes are made by others and marketing campaigns are wasted by unrealistic expectations.  Realism is important in taking any property to the market; realism should be used in any market assessment.
  3. Vacancy rates and redundant properties will have an impact on the negotiations with buyers and tenants for any property.  That then flows through to prices and rents achieved.  When the vacancy rate exceeds 10% of the market stock within the property type, there will be a softening of prices and rents.  That’s when incentives take over to maintain market momentum and attract inquiry.
  4. To assess any property for value or rent change, it is not just a matter of direct comparison to other properties; special things must be considered such as quality of location, improvements, maintenance, vacancy factor, tenant mix, tenant clustering, outgoings costs, and lease expiry profiles.  Bring everything into the equation and consideration.
  5. Some properties will require renovation to attract tenants and sustain reasonable levels of tenant occupancy in the coming management year.  The renovation requirements should be factored into an assessment of rental and property value.  A ‘before and after’ case can be established for upgrading a property.
  6. The yield or capitalization rate achieved for any sale price against passing net income will be impacted by all those factors mentioned in item 4 above.  Each property should be assessed taking into account those extra deal factors.  The object is to compare ‘like with like’ or adjust figures so you can achieve that comparison fairly.

So all of this can allow you to make a professional assessment of market rental and property price change; you can do this for your managed properties.  Any quality property and client should certainly be subjected to this process.

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