A vacancy is a good thing in some investment properties today. An empty tenancy space or upcoming vacancy will give you the chance to change or upgrade things within the property. It will also give you the opportunity to move businesses and tenancies around into alternative locations.
Vacancy management is a real strategy and a valuable part of tenancy mix planning. That tenant mix plan can be merged with the landlord’s investment plans for the expected lifecycle or holding period for the asset.
A few leasing ideas from the real world
Let’s say you have just taken on a new property to manage and lease; there are some things to look at. There are multiple occupants in the greater property, and some of those tenants are on short leases or soon to be expiring leases.
You can quickly create a visual chart of upcoming vacancies on a time line to see the pockets of space that you can do something with. You can also look at the pressures of expansion and contraction that some tenants may be experiencing. You will need to talk to existing tenants to see how things are going for them and where any relocation challenges may be coming up.
Here are some ideas to get this strategy underway:
- EXISTING TENANTS: Work with existing tenants to see how they may be needing adjustment as their tenancy requirements change.
- ADJACENT AND NEARBY VACANCIES: When you have a vacant area to handle from a lease perspective, see if adjacent tenants may want to move or expand into the space. Some nearby businesses in the same building may very well welcome the opportunity to take up other space in the same property.
- CONSOLIDATED SPACE: One tenancy can be expanded into another, and it’s just a matter of how that could impact the property over time. The expansion may involve modifying of fitout and common areas. Perhaps the common area can also be reverted to leased space as part of the change.
- ANCHOR TENANTS: The larger tenants in any property are responsible for paying a greater percentage of the base rent. On that basis they should be specifically handled in the property leasing plan.
- LEASE DATES: Watch the lease days so you can see critical dates that will impact property performance. Pay particular attention to the lease expiry dates across the property and the tenant mix.
- MARKET RENTS: Are the rents in a given property similar to market expectations? Look for situations of under and over renting. A market adjustment at a future time in the lease will throw changes into the property cash flow.
- LEASE DOCUMENTATION: Some leases are better than others from an investment perspective. The only way you will know the better leases in your tenant mix is to go through the list of tenants and read all the lease documentation.
- PREMISES UPGRADE: A vacant part of any property will bring about the opportunity for renovation of both common areas and leased areas. Review all leases for the requirements of renovation.
So the message here is that any vacancy in a commercial or retail investment property can be handled in a positive way. You can find ways to minimise the vacancy risk and update the property to the next level of activity and rental return.