Without a doubt, franchise tenants are a good opportunity for Commercial Real Estate Brokers and Agents from a leasing perspective. That being said, the brokers and agents really do need to understand what those franchise tenants require within the premises and also the essential locational factors of the property.
So here are some factors that would come into those considerations:
- Size of the tenancy – In many respects the size of the premises will influence the business and its ability to function. The tenant will have a standard size of premises required to be occupied. Below a certain space allowance they will not be able to operate successfully to the business model that is part of the franchise business operation.
- Configuration of tenancy – The internal space will need to offer versatility in business trading. If the tenancy contains an existing fit out, that may need to be removed by the landlord prior to any lease being negotiated or completed. The franchise tenant will likely have an internal fit out design and specification standard that will be constructed into the vacant area. The internal space appearance will need to be the same as that which appears in other locations within and for the franchise brand.
- Passing road and foot traffic may be critical factor for the purposes of tenancy business and ongoing sales. This is certainly a big consideration when it comes to retail type franchise tenants. Within shopping centres, you will require a good idea of traffic numbers, trading days, and customer counts to attract the franchise groups to your vacant tenancy.
- Exposure for the tenancy will be a big issue. The branding and the marketing initiatives consistent with a franchise group will need to be supported for the tenancy and within or on the property. Special allowances may be required when it comes to the size and placement of franchise signage, installation of a pylon sign, and signage illumination.
- The hours of operation for a franchise tenant will need to be within the standards of the brand. There is no point in the landlord imposing difficult restrictions on hours of trade if those hours will have an impact on franchise and tenancy success.
- Lease terms and option periods will be matched to the franchise agreement between the franchisee and the franchisor. In considering a lease for the franchise tenant, it is necessary to match the lease to the duration of the franchise agreement.
- Rental structures and lease standards with the franchise tenant are likely to be different to those that were offered to other tenants within the property. For that reason you will need a confidentiality agreement between the landlord and the franchise group to ensure that the terms of the lease agreement remain private and confidential.
- Many franchise tenants and business groups have a standard lease that applies to their property occupancy. This means that the landlord for the property will need to consider the lease provided by the franchise group and its suitability or application to the vacancy. On that basis the property manager and the landlord will need to negotiate through the lease with the tenant to achieve a satisfactory outcome given the property location, improvements, and the cash flow requirements.
So there are some serious opportunities here for improving the performance of a property for the landlord. Franchise tenants are an established and proven business brand and business model. They can bring stability to a property as well as the rental structure.