Thinking More Like a Landlord Could Be a Smart Move
To get the most out of an industrial lease in the fast-moving industrial market, a tenant may have to start thinking more like a landlord.
Here’s the rub: businesses want the most cost-effective/economical lease and landlords want the best return they can get on their asset – common ground needs to be established.
Compromise may be required from both sides of the leasing equation, but as a business, you should consider how you can best make a lease work for you while keeping the landlord on side.
In today’s industrial sector, rents are rising and securing good industrial space for lease is almost becoming a competitive sport throughout New Zealand. This is most evident in “hot” industrial property markets such as Auckland and Christchurch.
In simplistic terms, most industrial landlords aim to be hands-off property owners, have their property fully-tenanted with good leases locked in place, and with an expectation that over time, their returns will increase.
So how can you, as a tenant, mesh your business goals with those of your landlord at a property level?
1. Consider getting a bank guarantee over your lease to give your landlord some added confidence and certainty
2. Be a proactive tenant and be mindful of the make-good clauses within your negotiated lease. Attend to maintenance issues quickly and be aware of both your own and your landlord’s rights in regards to structural work on the building
3. Pay on time and accept that fairly-negotiated rent increases are a fact of life – your agreed lease will reflect this
4. Take renewal early and reset the rental levels as an increased term creates value for the landlord
It would also pay to keep well informed of changes in the compliance environment that could impact how landlords think – and there’s one pending legislation change which could also affect the way larger companies, in particular, look at lease terms.
New lease accounting legislation – International Financial Reporting Standard 16, or IFRS 16 – is in the wings and may have an impact on the optimal length of leases being negotiated. This new legislation will mostly affect listed and large privately-owned companies that lease property assets from others. Those companies will now be required to recognise nearly all of their property leases on their balance sheets (with some exceptions). This legislation does not kick in until 1st January 2019 but next time you are at the accountant, ask for more information so that you are up with the play.
Navigating the way to a lease that suits both parties is all in a day’s work for leasing agents who are entrenched in the industrial sector throughout New Zealand. These agents are across the latest industrial property trends, have access to up-to-the-minute statistical data and are actively able to take the market pulse in what is an ever-changing property landscape.
The tenant-landlord highway is a two-way street – so when you adopt a landlord mindset, the journey runs more smoothly.