Monday, May 21, 2012

Lease Incentives In Commercial Property Today

When the property market slows, lease incentives come back into the strategy of leasing vacant space in office, industrial, and retail property.  The agent and the client should decide what types of lease incentive suit the property type and the cash flow of the landlord.  This can all be done at the time of listing the property.  Here are some tips from our Newsletter for Commercial Agents.

Supply and demand for vacant space will always impact the property market and on that basis, landlords need to be flexible regards marketing costs and strategies, and the lease incentives offered to tenants.  That being said, strategy and preparation are all part of the process.

Here are some more tips that can apply to incentives and leasing commercial property today:
  • Research the local property market to understand just how many other comparable properties exist nearby.
  • The local business sentiment will have major impact on the levels of inquiry that apply to commercial retail and industrial property leasing.  Understand the momentum and sentiment of the local business community.
  • Get some detail of the other rentals that are on offer in the existing comparable properties.  It will be necessary for you to inspect those properties to understand the levels of improvements therein.
  • Monitor the new developments coming into the property market locally.  They will have impact on the asking rentals and lease incentives.  You can monitor the new developments by keeping in close contact with the planning approvals division of the local council.
  • Any lease incentive to be offered to the tenant should be structured into the landlords cash flow.  That could mean rental reduction, rent free period, landlord funded fit out, and the provisions of cash to the tenant.
  • The lease incentive should not be provided until all lease documents have been successfully and legally signed by all parties.  Further to that, any guarantees should be made available to the landlord to protect against any tenant default during the lease period.  The value of the lease incentive should be added to the guarantee to be provided by the tenant.  That will ensure that the landlord gets back the initial outlay of the incentive if the tenant defaults.
  • The existence of lease incentives creates a process of face rental.  Many property valuers will discount the value of the property given the existence of the incentive.  On that basis all provided incentives need to be fully and correct be documented.  Withholding of information is not a good strategy when it comes to owning commercial property.
  • The implementation of the lease incentive should be decided prior to the commencement of marketing.  The landlord solicitor should be consulted regards the appropriate documentation to use with the relative chosen incentive type.  When a tenant is located, the incentive can then be made available if it is appropriate to close the deal.
You can get more tips for Commercial Real Estate Agents in our Newsletter right here.