Commercial Property Lease Incentive Tips
In this property market, lease incentives are very common. Landlords should be prepared for the tenant’s request for an incentive, and the leasing agent should help the property owner with the facts about the typically used incentives.
How to Work with Lease Incentives
A fundamental fact exists regards the use of the leasing incentive; it should be explained to landlords. Incentives, if they are given in any lease transaction, should be ‘paid back’ by the tenant to the landlord plus acceptable interest over the term of the lease.
This can be done by amortising the value of the incentive and adding it to the expected rent payments. The benchmark for the recovery will be a market rental assessment and projection over the coming years of the lease. Large properties and shopping centres do this all the time.
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Some tenants are not interested in hearing about this ‘repayment’ process of any incentive, so in most cases, the recovery of the incentive cost is a calculation handled in the lease commerce by the leasing agent. The lease rent review profile in the initial lease term is ‘enhanced’ to collect this extra money involved in the incentive outlay.
Leasing Trends and Indicators
Every property market will have its own trends and evidence regards the incentive types and levels. Other recent property deals will set the lease evidence and the benchmarks.
The incentive will be high if the market is oversupplied with vacant space through new property developments or higher vacancy factors. Conversely, if the amount of vacant space is lessening or negligible, the incentive can disappear from new lease transactions.
For established tenants negotiating a lease renewal, the lease incentive will be less than that given to a new tenant. How much less depends on property market conditions.
How easy is it for a sitting tenant to move? That question and the answer will dictate the incentive you should offer to keep a tenant in your existing property.
Get to know your property markets and watch what the rents and the lease deals are doing. Landlords have to compete with other nearby properties, so incentives are a fact of the current property market.
