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How You Can Rehabilitate a Commercial Office Property and Its Investment Performance

A commercial office property will occasionally develop performance issues. Managing property activities and results will always be an ongoing task. 

So, the property manager and landlord should work together to strengthen and resolve any issues with property performance.

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So how can you rehabilitate a property that has challenges?

A through awareness of the property, the local property market trends, and the landlord’s investment situation will always help.  When you know all the current trends and pressures, you have something to work with.

So where do you start?

Here are some strategies that can help get started with handling many of the property challenges in a distressed or struggling asset:

  1. Vacancy factors – Look into the current and potential vacancy factors that are likely to impact upcoming rentals. If a tenant is soon to be getting to the end of their lease, perhaps a new lease strategy and offer can be put to them to stay in occupancy or stay in the building.  It always costs money for a tenant to move property and to change business location.  Those facts will always be on your side when it comes to lease negotiations with any existing tenants.
  2. Good and bad tenants – If the asset has lots of tenants and or leases, then a tenant mix review should help you see or choose the tenants that are good for the property in the long term, and those that should be encouraged to leave. Strategies can be developed with each type of tenant given prevailing lease documentation.
  3. Expenditure levels and averages – How are the expenditure levels tracking given the existing operations of the property on a day by day basis? How will those expenditure levels compare to other properties locally?  Split up the property operational costs and compare those costs to the industry averages per category. Make sure that the property operational costs are within the realities of average property performance.  You don’t want your property to stand out as that with the highest occupancy costs for the region.  Over time that fact can destroy your tenant mix.
  4. Talk to the tenants – A series of meetings with the tenants in the property will help you see things that are difficult to isolate in a review of general property performance. Ask questions about occupancy changes, needs, compatibility with other tenants and any shortcomings that the tenant sees within the property.  The tenants in the property can be your ‘eyes and ears’ to identify property challenges and operational issues.
  5. Maintenance – Talk to all your contractors to hear what they think about operational plant and machinery and the capability of that equipment in handling ongoing property occupancy. The maintenance routines will impact costs and capital works programs.  You will need a budget for each.
  6. Budgets – Hopefully there should be a budget in place for the property that was established given known occupancy issues, the tenant mix, and property capability. Review the budget against both income and expenditure actual performance.  Look for the discrepancies.  You will then have something to work with.

To rehabilitate a struggling or distressed commercial property, it is best to work from a base of current facts and figures.  When you know what is going on you can connect with the landlord to develop a series of strategies of improvement.

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