Turning a Vacant Industrial Property into an Opportunity for the Landlord
When you get a vacancy in an industrial property, many landlords ‘stress out’ and overreact with the loss of rent and outgoings during the vacancy period. To further complicate things, some landlords ask far too much rent in the marketing of the vacancy; the end result is a protracted vacancy and lengthy lease downtime. The property soon becomes ‘stale’. You commonly see these properties with lots of agent’s signs across the front boundary; landlord desperation or stupidity will drive the problem.
I have said many times previously that the open listing process really doesn’t work from an agency point of view; you cannot base your real estate business on ‘luck’. You certainly would not devote too much time in marketing an open listed property.
It should be noted that at the ‘entry level’ industrial property landlords can be inexperienced with the ‘mechanics’ of property performance and the strategy behind it. I like to remind them that it’s not the starting rent that really matters in a lease, but rather the value of the rental and income over time. That is where the structure of the lease and occupancy become a valuable consideration.
So let’s look at some ways where we can turn a vacant tenancy into an opportunity for the landlord. The cash flow from the rental and leasing situation extends over the duration of the lease. The starting rental really doesn’t matter too much unless the property is to be sold in the immediate future. The capitalization of the cash flow over the period of time is far more important.
Here are some factors of opportunity to be worked by the industrial leasing agent and maximized in leasing any vacant industrial property
- Renovation – In the immediate sense a vacant property can be renovated and rejuvenated for the lease marketing process. First impressions always matter so look at the property from the exterior and see if simple painting and exterior renovation work can be undertaken. A lift in the presentation of the property is likely to help inquiry and inspection conversion.
- Make good – Any outgoing tenant may have a renovation and make good requirement to satisfy in and as part of their lease completion. Ensure that these works are undertaken prior to the expiry of the lease and that the works are fully satisfied. Any retained bond or bank guarantee will help you recover the necessary costs of the make good if the tenant has not satisfactorily completed the process.
- Better Tenant – When you lose one tenant, a carefully directed marketing campaign with a low rent start can shorten the time frame to find a new tenant. Yes, there may be other vacancies on the market currently, so the asking rent (plus any incentive) and the presentation of the property will have a lot to do with shortening the vacancy downtime.
- Better Lease Terms and Conditions – Far too many landlords accept generic lease terms and conditions without much forethought; they later find that the lease doesn’t support all the factors of occupancy or the targets the landlord may have with the property as an investment. A landlord that is serious about property performance should have a good lease drawn up for their property.
- Rent and Outgoings Structures – The cash flow from the lease will be based on two main things; that is the rent itself and the outgoings recovery from the property. A good leasing agent can offer alternatives of starting rents, rent reviews, renewal provisions, renovation requirements, and permitted use. Look at the value of the rental over time; that is where the tenant adds value to the property. Negotiate a lease that provides long term benefit to the landlord given their investment plans.
As you can see, there is plenty of opportunity to be seized when a vacancy comes up in an industrial property. Stay ahead of the property facts by understanding what the existing tenants may be doing or needing from their occupancy, and also what the landlord will require from the property over time. That is exactly what a professional leasing agent should be doing.
