Lease of life

Lease of life

Total Property - Issue 7 2018

In commercial property investment, the magic word is Yield. Whether it’s office, retail or industrial real estate, the income your property can generate as a percentage of its value is usually the key factor in how well it stacks up as an investment.

Along with the location and quality of physical construction, the quality of your lease – as embodied by the tenant who pays the rent – is a driving force behind the value of a property, and the returns you will receive as its owner.

Chris Menzies, head of Corporate and Occupier Services for Bayleys Property Services, says a good tenant is one who will pay their rent on time, and comply with all their lease obligations throughout the tenancy.

“If you’re looking for a return on investment in a property it’s the tenant who is paying that return. Purchasers are aware of who good tenants are and, if you have a good tenant, that creates value in that asset.”

Here are seven key things to consider when seeking a tenant:

Good tenants are drawn to good landlords

It pays to be known as a great landlord. If you lead by example and meet your obligations, your tenant is more likely to follow suit. Build a reputation as a responsible landlord who keeps their property well maintained and is reasonable to deal with, and you will find it easier to attract great tenants.

Tailor your marketing to your ideal tenant

Identify your ideal tenant and work with your agent to build a strategy that will best position your property in the market. Whether it’s in the national business pages, or a targeted local campaign, how and where you position your marketing will dictate where enquiries come from.

Financial due diligence

A household brand in a thriving sector will largely speak for itself as a quality tenant. If it’s a smaller, lesser-known firm take time to learn how they operate, how they plan to use your building, and how sustainable they are as a business. Ask to see their business plan, and get to know how long they have been operating, their profitability, cashflow and financial stability. If they have rented before, check their track record.

Front-foot any questions or doubts

Anticipate what prospective tenants will ask and be ready with answers and paperwork. Any good tenant will want to know that your property complies with all regulatory requirements, including around earthquake strength and asbestos. They will also want to know what outgoings they will need to pay for on top of rent.

Make sure your building meets tenants’ needs

Consider how you could make it work better for their business. If it’s too small, is there a way to expand the available space? If the entry is a problem, can it be altered to offer better access. A relatively inexpensive modification now could pay dividends for years if it secures you the right tenant. The better your building meets their needs, the longer they’re likely to stay.

Be prepared to be flexible

Be open to adapting your processes or documentation. If a prospective tenant is a major national organisation that leases multiple sites they may have their own standardised set of legal documents. A landlord who is prepared to work with these, rather than insisting on using their own, will spare their would-be tenant unnecessary complexity and legal work – and avoid a turn-off the tenant may not face from others competing for their occupancy.

Incentivise the right tenant

If you need something extra to get the deal over the line, consider offering an incentive such as a rent-free period or a financial contribution towards fit-out. Other landlords may make their own offerings; if this is the perfect tenant for you, make your enticement proportionate to your desire to get them into your building.

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