Six mistakes to avoid in your commercial leasing strategy

Commercial,Property ManagementFriday 2 September 2016

You’d be forgiven for not knowing what a commercial leasing strategy is – lots of investors don’t. But without a well thought out leasing strategy, your commercial property investment could be in all sorts of trouble.

That’s why good commercial property management is essential to prevent the following key mistakes when working out your leasing strategy.

1. Not vetting potential tenants properly
This really is the foundation stone of your tenancy. A rigorous series of checks and balances is necessary to weed out tenants with criminal records, chequered financial history and unreliable character.

A solid tenant can make all the difference to the financial performance of your investment. And if your tenant has cash flow problems, you probably will too.

2. Allowing loose leasing terms
Flexible leasing terms might seem a good idea to keep tenants happy, but they can cause all sorts of headaches in the management of your premises.

The length of the commercial lease needs to be in accordance with your overall investment plans, especially if you are renting out multiple units.

If your tenants all have different lease length and conditions, it could turn into an administrative nightmare.

Overly flexible lease arrangements can also mean higher turnover with leases ending prematurely.

3. Getting rental rates wrong
Are your rents all over the place? Strive for uniformity in your rates to prevent tenants getting annoyed if they find a neighbour is paying substantially less for an equivalent unit.

Try not to be greedy when setting your rates. Wanting to maximise returns is one thing, but holding out for an unrealistic rent means you might let great tenants slip away.

A quality tenant paying a slightly lower rent is far more profitable in the long term than an unpredictable tenant paying a higher one.

4. Over-capitalising on your property
Get expert advice from a commercial property manager before you spend money on improving your premises.

Make sure any spending is built into your overall leasing strategy, and be aware that customised additions to your factory units – however impressive – might be totally unsuitable for a cross-section of future potential tenants.

5. Destabilising competition among tenants
It’s important to take into account the balance of trades and industries when selecting tenants.

If you end up with three printers, for instance, intense competition might lead two of the three to terminate their leases.

6. Thinking: ‘Once they’re in, that’s it’
Getting the right tenants is just the start of it, as any good commercial rental management will tell you.

As with all human relationships, the relationship between you and your tenants will need solid, ongoing management.

It’s worth paying attention to the finer points – keeping your premises clean, tidy and well maintained in both individual units and communal areas.

Work out a sound leasing strategy right at the start of your commercial investment journey – and reap those future rewards.