The Top 3 Challenges of Managing Commercial Property - Part 2, Vacancies
Well maintained, presented, and humming.
Part 2 - Vacancies
In this part 2 of a 3 part series, I look at common issues facing Commercial Property Management in Auckland and provide some tips to help keep your Commercial Property running smoothly. Check out Part One on Tenant Retention.
Vacancies and closed businesses are damaging to a commercial property. It affects the value of your asset and the confidence of your remaining tenants. But vacancies when managed well can lead to growth and opportunities.
4 Reasons your Property may have Higher than Normal Levels of Vacancy
Changing Trends - In the early 2000’s large format gyms were in fashion, with separate workout areas for women and a class timetable that is packed with ever changing, on-trend classes. With buff trainers wandering around encouraging gym bunnies to push themselves that little bit harder. By 2018, 24-hour small format gyms are popping up on every street, where you can work out in the middle of the night without anyone talking to you at all. Lately, Cross Fit gyms have taken a chunk of the market share. Only 15 years ago, banks used to take pride in having well manned branches on every high street, but now, if you can track down your banks branch in a back alley or mall it’s likely that they are only open limited hours and there is always a queue. I predict that banks will have to swing back to offering more branches in the near future. There are also changing trends between internet based businesses and bricks and mortar shops which can wreak havoc on your commercial property’s occupancy rates.
Our Evolving City - Population growth, increasing density, gentrification, rural land giving way to industrial, residential or commercial property, the growth of town centers and new suburbs all effect what commercial properties need to cater for. If your area is experiencing slow or increasingly rapid evolution the needs of the population will also change.
Global Factors and the Economy - I am sure most people remember what happened to travel agents in 2020. Many businesses had to close down immediately and it has been a very difficult decade for anyone in the travel sector. The economy also effects businesses cyclically. During the 2008 recession many restaurants had to close while people tightened their belts and stopped dining out, but conversely, takeaway outlets actually had an uplift in trade.
CP Pro Tip: If you have some vacancies in your commercial property, it might be time to reach out to travel agents, as they are experiencing high level of demand again and there are very few stores that managed to stay open between 2020 and 2023.
Deferred Maintenance and Poor Management - In 2012 my partners and I invested in a shopping complex that had gone into receivership. For the previous year the management of the complex had been neglected. Maintenance issues were deferred, tenants requests ignored, and leases left to lapse. The result was that vacancy and arrears levels were high, the tenants that remained were unhappy and the property needed a lot of maintenance to get it back to acceptable standards. Within a year of careful management and catching up on maintenance, the property had not only grown in value and presented much better, but it was fully occupied and bustling again.
Vacancies can have a snowball effect in multi-tenancy complexes
How to Avoid High Levels of Vacancy
Retain Your Good Tenants
Part One of this blog series provided information on how to retain your good tenants and why this is essential to keeping occupancy levels high. Show those tenants some love and they will stay longer than you had ever hoped.
Keep Abreast of Trends and Be Agile
Change is inevitable. As confident as I am that both banks and travel agents will be leasing again in the near future, I also know that other businesses will cease to need traditional premises to house their businesses. New businesses will evolve to cater for new trends. Currently service centres for electric vehicles and charging stations have increased to cater for all the Tesla’s on the road. When you are leasing your building, plan for the future. In developing suburbs, real estate agencies perform well, however when development slows down or the housing market has a slump, you will need a strategy for your property to evolve along with the area. Perhaps, when construction of the surrounding housing is nearing a close, you will want to convert office space into childcare to cater to the increased population.
Imagine what you could charge for this parking space.
Anchor your Property Well
There are certain businesses that have been proven to weather the storms of changing trends and economic factors. Dairies, supermarkets and greengrocers will always need premises. Liquor and takeaways also have a constant presence. Medical businesses have excellent longevity. Work closely with these anchors to make sure that the premises continues to offer what their customers need so that they renew and extend their leases.
Maintain your Property to a High Standard
A high standard of maintenance and presentation does not have to mean a high outgoings bill. Sure, there are fabulous retail properties with climate control, living green walls, green spaces with bean bags for passers-by to lounge on, and every other amenity imaginable. These properties also come with an eye watering outgoings bill, that is out of most businesses price range. If you have relationships with good contractors, the right contracts in place and a high level of management you can have both a high standard of presentation and an outgoings bill that is within industry standards.
CP Pro Tip: Decorate your vacant shopfronts with professional “For Lease” signs and tasteful advertising to make your complex look more vibrant and attract the right type of business.
Engage Great Leasing Agents
Engaging good leasing agents and fostering those relationships can really help you reduce the time your tenancies are vacant for. Great agents will know what businesses to target, what franchises are expanding or looking for shops in your area and how to compliment your existing businesses. Good agents make the process of leasing seamless.
Find the Right Property Manager
Don’t settle for run-of-the-mill Property Management. The management of your property effects your asset value and poor management can have serious, expensive consequences. Your property manager should be invested in your property’s success, they should be available to your tenants, and they should be able to maximise your occupancy rates. A great property manager should also be able to advise you on market trends, the performance of your existing tenants and anything that may, now or in the future, affect the performance of your assets.
Trust me, I am a professional.
In multi-tenanted properties, vacancies can have a snowball effect. If you have single tenancy properties, lengthy vacancies can have serious implications on your cashflow.
If you are interested in hearing how CPP’s Property Management service can help you achieve and maintain high levels of occupancy, email me today. My initial consultation is always free.
Regards,
Kirstin
