The Number One Factor for Commercial Real Estate Success: A Quality Tenant
In commercial real estate leasing today, the first tenant that you find to fill a vacancy in a property may not be the best tenant for the investment over the long term.
Attracting quality tenants can be more difficult than some think, as you must consider a mix of tenants that work well together. Ultimately, you need to consider first and foremost the future of the property, the improvements within the asset, and the investment targets of the client. You can then choose the best tenant by type and market the property accordingly.
Making sure your property attracts as many high-quality tenants as possible should be done right from the beginning. The marketing strategy behind the leasing requirement will allow you to drill down into the factors of attraction that apply to the vacancy. You want to attract the best tenants for the location.
Looking over the information you need
You’ll need some information to assess the property, the client, and the local area. The depth and the strength of your research will help you match your services to the requirements of the client and the property.
It’s important to understand the client first and foremost. A few things to keep in mind that clients will be looking for include:
- How long do they wish to hold the asset?
- What are the requirements of cash flow from the lease?
- Are there other tenants within the property to support the rental return?
- In any medium to large property, you will need to review the lease expiry dates, rental structures, and occupancy pressures before you lease any vacancy to a new tenant.
- Are there factors of renovation that need to be incorporated into the tenant mix and the lease structure?
- Are there factors of risk that need to be incorporated into the property performance plan and the overall leasing strategy?
In answering all of these questions, you will have a reasonable idea of the best tenant by industry. Understand how the tenant will fit into the mix to strengthen the overall property profile and income return.
Add Square Footage to The Property
Increasing the square footage of the property is one of the most common ways of upping the ROI of properties. As long as the demand is there and construction costs are reasonable, this can be an easy way to quickly increase profits.
Keep in mind that while physically adding square footage is one way of adding more space, increasing the amount of rentable square footage can not only be more lucrative, since the added space makes for a higher load factor, but can allow you to raise rents when the extra space goes towards shared amenities.
This can be done by recalculating the rentable square footage according to the Building Owners and Managers Association’s method for recalculating square footage. Even though the BOMA standards have been around a long time, there are still buildings whose footage either wasn’t recalculated, or was recalculated but never implemented.
Add Shared Amenities
Amenities such as private lounges, complimentary WiFi, conference facilities booked through an online system, and trendy cafes, are becoming the quickest way to attract high-quality tenants.
Although the idea of creative office spaces was first seen among the technology industry, the idea of creating a work space where employees could work and relax together in spaces specifically designed for these functions has now become a mainstay of the successful modern office.
These amenities are more than just work spaces: they are spaces crafted to provide experiences that allow optimal work to take place.
Which amenities to add depends on several factors, but statistics show that while renovations for added amenities can add up, the value gained results in improved tenant retention, higher rents, and increased equity.
While some investors are dedicating entire floors to shared amenities, it might be best to start off with something a little smaller – a room, a suite … something that adds value without taking up a bulk of your space.
Don’t Forget the Exterior
First impressions matter, and an exterior with low-quality finishes and halfhearted landscaping can turn off even the most easygoing tenants.
Fortunately, it’s unnecessary to renovate the entire exterior in order to achieve a memorable building; the following methods are low cost, easy to implement, and can be changed from time to time to update the building’s look.
Replace doors and windows
Replacing windows and doors that are either outdated or poorly constructed is one of the most dramatic ways of improving an office buildings appearance. Incidentally, it will also help you lower the energy costs of running the HVAC system.
Invest in landscaping
Many office buildings start out with professional landscaping yet for some reason, end up with a hodgepodge of plantings that detract from the entrance. Professional landscaping is one of the best ways to get the most bang from your buck, and can be implemented immediately and at a reasonable price.
Update the signage
Office signs serve an important function. Signage outside of the building makes it easy for staff, clients, and prospects to easily find their way into the building. Consider replacing both exterior and interior signs in order to provide a unified look to the entire property.
Increase parking and security
This includes repainting parking lines, repairing cracks in the pavement, adding cameras, an alarm system, mirrors, and other security features helps tenants feel safer, and decreases your insurance premiums.
A good tenant for a property will usually bring the following factors to the asset:
Stability – Every tenant should be assessed for stability before you commit to lease negotiations. You will need to review their business history, other locations of occupancy, and talk to the key people.
Income – Look at the levels of rental that apply in the local area. Will you be leasing the property on a gross or a net rental basis? What are the market rentals that apply respectively? How can you improve the income over time through rent review structures and strategies? How long should the lease be? All of these questions will impact the income for the asset. Answer the questions before you negotiate with the tenant.
Profile – Some tenants will bring with them a business profile that is attractive to the property. A business brand or a business profile can bring a marketing advantage to the property. Some franchise brands also achieve the same enhancement.
Taking these three elements into account, you can do something with your lease negotiation. You can give the landlord some solid reasons to negotiate effectively and directly with the chosen tenant. Most landlords will cooperate when it comes to attracting a new tenant in a stable and strong lease arrangement.
Remember, these are just some of the ways you can attract the right tenants and increase your property’s value. You need not implement all of them at once, and if you’re on a tight budget, asking your prospective tenants which improvements they’d appreciate most will give you a good idea which improvements are the most essential.
Using a helping hand
At AushCo, we create value for our clients by providing you with all the information needed so you can make the best decisions to effectively execute your plans.
As a premier commercial real estate company, we are here to provide the level of service we would want to receive ourselves. We put ourselves in the shoes of the investment property owner, tenant, or buyer, and make recommendations that provide the best financial returns and experience.
Contact us for more information, as we can help you through any issues or questions you might have regarding commercial real estate.