commercial real estate leasing by John Highman

When we lease commercial or retail property today, the income factors can be improved initially through good lease negotiations, and secondly a strategically sound tenant retention plan.

What can you do? Cash flows and tenant retention underpin the performance of the property.

We are then the ‘strategists’ to the process of property improvement and we can market ourselves and our services through that concept.

The leases are something that will set the rules regards occupancy on both the tenant and the landlord.  That is why the leasing expert for the property should be suitably experienced to establish the correct rules and rentals of occupancy for the duration of the lease. 

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Lease Facts and Structures

It is one thing to have a good tenant to lease the premises, but it is also very important to have a well-structured lease with terms and conditions to enhance property performance factors.

Today’s property market can be somewhat frustrating when it comes to tenant enquiry and occupancy. Vacancies exist in most towns and cities, and the older premises are now regarded by many tenants as redundant from a leasing point of view. 

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Tenants want the best available space at the lowest possible rental.  To some degree, the starting rental in a lease is not as important as the rental over the long term.

The initial market rental will be impacted by the lease incentives and tenant enquiry existing in the local area.  In most cases, the existence of an incentive at the commencement of a lease will create what is called a face rental.  The face rental is a false rental that will usually be discounted by a property valuer when it comes to any value assessment.  The incentive will thereby be removed from the value of the property.

Rental and Lease Variables

So here are some factors to consider when establishing a rental in a commercial property today.

  1. Investigate the levels of market rental that apply to the property type in your local area.  Ensure that those properties that you investigate are of a similar type and age.  Look for any differences between the properties that could discount or enhance the rental being compared.
  2. There will be differences between gross and net rental when it comes to an established lease.  The tenant’s size or area occupied will also have an impact on the level of rental.  The types of improvements in the property will also impact the rental.
  3. Incentives will come and go from the local property market depending on the supply and demand for new space.  Any new property developments will likely throw some pressure on existing properties and existing market rentals.  Keep well ahead of the trends when it comes to new property developments locally.
  4. The rental in a property can be improved by the rent review process and third income streams.  By definition, the rent review process is something that is escalating the rental during the lease term in a variety of different ways.  The lease will always set out an outline of the rent review process to be applied on any particular date.  Any market rent review will have relevance to the local area and similar property types. 
  5. The third income streams are somewhat different and apply to the extra areas or situations of occupancy that the tenant may require.  By definition, they are types of extra income or rental that can be obtained from a single tenant.  You can get this extra income from car parking, signage, licensed areas, storage, and tenants, and naming rights.  When it comes to leasing anything extra to a tenant, think extra rental.
  6. The outgoings in the property are related to the building operational costs.  They will vary from property type to property type; however, they will fall within averages when it comes to each specific type of property.  When it comes to leasing a property or a tenancy, those outgoings should be within the acceptable averages for the area and the property type. It is a fact that outgoings are largely impacted by rates and taxes as they apply to the property.

The leasing process is quite a specific skill and very specialized.  A commercial property agent today can add considerable value to the landlord’s property through strategically leasing a vacancy and the establishment of a tenant retention plan.

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