Vacancy in a Difficult Leasing Market
Our advice on how to tackle vacancies in a difficult market
Across a large property portfolio comprising a range of retail, commercial and industrial assets with 70+ individual tenants, vacancies are a certainty at some point.
Sometimes for positive reasons – when tenants outgrow available space from business expansion, sometimes for business retraction reasons, or simply because a business needs a change.
Our approach to investment management is to try and build a strong, open relationship with all our tenants so that they feel welcome to talk to us about their tenancy needs, and if we can no longer accommodate them, then having as much lead time as possible for an impending vacancy is paramount in a difficult market.
To use a case study to provide some tips on how to tackle a vacancy in a difficult leasing market, we consider 67 Greenhill Road, Wayville.
We have just come through a challenging re-leasing campaign for approximately 50% of the building’s NLA, which became vacant following the relocation of a tenant who had called Level 1 home for some 30 years.
A strong relationship with the former tenant meant that we had a long lead time from notice of relocation to actual vacancy, however we knew that this wouldn’t be enough time to secure a new tenant. The leasing market in Adelaide was difficult and it was becoming harder, with many owners setting new benchmarks for incentives for almost every new deal that was being negotiated (some not by choice if they had external pressures from the likes of a financier).
Due to a mix of timing and challenging market conditions, including vacancy rates and incentives both tracking up, the space was available for lease for an extended period of time.
With this example in mind, here are some tips and a brief overview of the re-leasing process in a very difficult market:
o Choose your agent wisely
The agent you have working on your property is extremely important. We went through a stringent appointment process of our leasing agents. Ensure that you engage with agents who are active in the location and size of your tenancy. We not only employed the services of experienced agents, but ones that would be prepared to work the property by a targeted approach and not just waiting for the phone to ring.
o Work with the agents
Clearly define your property points of difference compared with the competition and market these differences. No one wants to secure a tenant simply because they can offer the cheapest rent! Clearly define the strengths of your property over your competition and then get your agent focused on target marketing to work those strengths.
o Take the leasing agents advice on board regarding presentation and first impressions
We didn’t have access to a large amount of capital, we could however spend some money to enhance the appeal of the tenancy. We upgraded the toilets and provided a display area with new carpet and some display furniture. First impressions count – foyers, kitchen areas and bathrooms are often key as people can relate to these areas. If you have a large vacant office area, consider a “display area,” re-carpet/re-paint a smaller portion so that agents can take prospective tenants to this area. Most prospective tenants will find it difficult to visualise what a tenancy can look like.
o Stay engaged
We held regular meetings with the leasing agents to keep them engaged and to discuss and plan marketing. It’s human nature to get disheartened after such a long period of time with no result – try and keep the energy up. Consider reinvigorating the marketing every now and then, change the photos and wording on the advertising.
o Consider your fitout
We retained the existing fitout, albeit dated, in a difficult leasing campaign some tenants might find some use in a fitout. The agent can raise with prospective tenants the ability to have the fitout removed should they want a vacant floor.
o Keep it clean & comfortable
The tenancy was cleaned on a regular basis, including the windows. Before any inspection, the air conditioning was run to make for a comfortable space for prospective tenants to walk through.
o Be flexible
We had to be nimble and prepared to meet the market. Be prepared to work with your agent and consider different ways to approach a deal i.e. incentive structuring.
Finally, in difficult times, we knew we had to be patient.
The end result – a great outcome for the owners and the new tenant. Next month we will welcome a strong, privately owned local business who will make Level 1, 67 Greenhill Road their home for at least the next 7 years and hopefully well into the future. The tenancy is being completely upgraded and if you are driving down Greenhill Road, make sure you check out their new signage, you won’t miss it!
Carol Olsen – Portfolio Manager, Harmony Property Investments
27 August 2018