In commercial property leasing and management, the relocation of tenants can revitalize the tenant mix and boost the potential growth of market rental. On that basis the ‘relocation’ process is a real strategy in property performance; specialist agents and brokers should know how to optimize the tenant mix.
To provide that tenant optimization professionally they can provide a ‘tenant placement and relocation service’ to landlords as part of improving property performance. They can also provide a ‘tenant retention plan’ to help stabilize any existing tenant volatility and vacancy rates in a property that is under pressure from the property market generally or competing assets.
In buildings with multiple tenants, leasing and the property managers should be looking at all tenants across all parts of the lettable areas, to determine how things can be improved for the respective landlords. Consider these factors and questions as they apply to relocating tenants in a client’s property:
- Expansion and contraction – Some tenants will require more or less space as a result of business adjustment. Watch all tenants in the mix for that very purpose. It is better to help a good tenant in this way than to lose them to another property at the end of lease.
- Nearby tenants in the mix – Compatibility can be an important factor to watch when it comes to some tenants in a building and how they integrate into property function or impact the other tenants nearby.
- Lease duration – In leasing any premises, consider the ideal lease term that will allow flexibility in tenant placement and property change
- Renovation and relocation – Age can have a real impact on property presentation and on that basis renovations and tenant relocations within the property should be a consideration in both common areas and tenant leased areas. Leases should reflect clauses that focus to allow renovations to occur at the right time.
- Option periods – Some experienced landlords will not give options for a further term at the time of an initial lease negotiation. The strategy is wise in any prime property or a property that is destined for redevelopment. What you are doing in restricting lease term options, is to allow the landlord the fullest opportunity to change things where necessary in the tenant mix.
- Fitout requirements and specifications – Quality and standards in a building can be preserved by setting guidelines and rules on fitout installations for tenants. In an investment property with a lot of tenants, uncontrolled tenant fitouts can lead to poor presentation and that will eventually reflect in higher vacancy rates and unstable market rentals.
- Incentives to be offered – If you are introducing new tenants to a property or moving other tenants around as part of relocation, should you offer incentives to help those tenants make the move? It’s a good question and the answer will centre on the property market and the prevailing vacancy rates.
- Disruption to business – If you move tenants, they are likely to be concerned about disruption to business. If they are moving to a better location in the property then it’s not a big issue; if however you are moving them to a more ‘average’ location, consider the compensation issues that may arise if the tenants business is disrupted.
- Clustering – Some tenants integrate well in and around other particular tenants. The process is called ‘clustering’ and it works well in larger properties such as shopping centers as you strive to improve customer interest and sales for tenants. Clustering is therefore a valuable consideration in tenant relocation.
- Lease terms and conditions – Any good quality property should have a standard lease that is designed to support the landlords investment targets and property function. Key decisions in a standard lease would include rental types, rent reviews, permitted uses, tenant covenants, outgoings recoveries, and lease duration. If your client is lacking a ‘standard lease’ approach to their investment properties, consult with them to discuss all the opportunities that could be achieved in the property when that approach is taken.
- Market rentals – The market rentals in a property are likely to change when you renovate areas in the property or relocate tenants. In many respects you can predict market rental changes for your clients and show them how tenant types in certain locations will boost rental returns.
- Occupancy costs – Understand how occupancy costs are tracking today when it comes to the particular property type. Averages can always be determined with occupancy costs when you look at similar properties in the same general location. Your occupancy costs should be within the averages so that the net return achieved in the property remains on par with similar assets. When you understand the averages that apply, you can also predict what can happen to the net market rentals when it comes to property upgrades and tenant relocation.
So there are plenty of things that can be done here and tracked as part of a tenant relocation process in any investment property. In taking all of these factors together, you can become a true expert in tenant retention, relocation, and optimisation.