The Top 3 Challenges of Managing Commercial Property - Part One, Tenant Retention
Part 1 - Tenant Retention
In the next three blogs, I look at common issues facing Commercial Property Management in Auckland and how Landlords can mitigate those challenges.
Happy tenants renew their leases. If your property meets all of their needs they will want to stay. Relocating a business is expensive and disruptive both for the exiting tenant and the landlord. The cost of replacing a tenant who has not renewed or extended their lease is normally at least 6 months rent. This includes a vacancy period, leasing costs and a rent free period for the incoming tenant. There could also be renovation costs and longer vacancies if the market is soft.
The success of your tenant’s business depends in part on their premises location, amenities, security and presentation. Landlords success depends on their tenants businesses being successful. It is a symbiotic relationship that is made stronger with mutual respect, co-operation and kindness.
6 Reasons your Commercial Property may have a low Level of Tenant Retention
Your tenants business may need larger or smaller premises, if you do not have a good relationship with your tenants they may look elsewhere when they need to up- or down-size, instead of coming to you for potential solutions within your building or portfolio.
There may be maintenance issues that have not been attended.
There may be operational issues that affect their ability to do business, like security or parking.
Some businesses do not succeed for various reasons. Often your Property Manager will notice red flags like delayed payments or the business being closed when it should be open. If these red flags are not addressed by keeping regular contact regarding arrears or reaching out to your tenants, the situation will likely worsen until the tenant is in default and you are left with an unexpected vacancy.
Small issues within your property, when left neglected, can snowball into larger issues and lead to more tenants not renewing their leases. If your property has reached a tipping point you will notice lower levels of renewals and tenants vacating.
Many property management companies provide leasing services for your vacant units at an additional fee, so it is not in their interest to have your tenants renew or extend their leases. When you are engaging a property management company you should look for someone that focuses on building and maintaining strong tenant relationships. CPP does not offer leasing services, (although we can co-ordinate this with your preferred agent), so our focus is on retaining the tenants that you have. Check out my testimonials for feedback from landlords and tenants I have worked with in the past.
What are the Key Factors to Improving Tenant Retention?
Maintain your Property to a High Standard
Maintaining properties to a high standard is important but it also does not mean that you have to engage the most expensive contractors. Build strong relationships with preferred contractors. Scope maintenance carefully so that the standards are maintained without going overboard. Keeping outgoings costs within reason is important as well. Deal with maintenance issues as soon as they arise. Plan for irregular maintenance like carpark remarking or repainting before it is needed.
Be Responsive
In my work day I prioritise any communications from my tenants and respond as quickly as I can. Even if I cannot resolve their issue straight away, I let them know what action I have taken and when I expect an outcome. It does not matter how large or small the problem is, it is important that when a tenant communicates with you, they do not feel like they are shouting into the void.
She’s happy because I just sent her a reply to her email before her coffee got cold.
Visit Your Sites
I don’t believe in scheduled inspections. I do, however, visit my sites frequently. Either to induct or meet contractors, or to meet with the tenant about issues they may be having. While I am on site I do check for any issues around the property, and I do point them out to the tenant. I find this strategy works a lot better than checklists and email directives to weed the garden or replace their damaged sign. You don’t need to do this every time there is an issue, but often enough that the tenant knows you are available and engaged.
Build Strong Relationships with your Tenants
Building strong relationships with your tenants results in many benefits and this is one area where the work you put in will be repaid many times over. For one thing, happy tenants renew their leases, but they also pay their rent on time, let you know if there is a problem with the property, or if they are facing changes in their business.
Leases do come to an end for various reasons. Businesses may move on due to expansion, retraction, relocation, or business closure. If you communicate with your tenants openly and respectfully, they are more likely to come and talk to you when there are changes in their business. You may be able to assist their growth or help them assign their lease and avoid lengthy vacancies or lease defaults. If they expand or contract you may be able to move them to smaller or larger premises, or help them to sublease some of their space. Your property will be much better off if you invest in keeping your high performing tenants rather than finding new tenants.
CP Pro Tip: Delivering your tenants a small gift in person at Christmas or acknowledging when they have reached a milestone or business goal is always well received. It also humanises you and makes the people you do business with feel valued and important.
Support your Tenants
This one is so easy its silly, chuck them a like on their social media, write them a nice review, buy your morning coffee from their café or fill up at their petrol station. I know one landlord that drives half way across Auckland to get his hair cut at his tenants salon. That hairdresser has been at the same premises for 18 years now.
Taking your tenants out for coffee is another good way to build relationships
I have built relationships with hundreds of tenants throughout my career and while there have been, (and always will be), difficult relationships the most successful ones are where there is open, honest and respectful communication between the parties. It is as simple as maintaining the property well, responding quickly to any issues and treating tenants like respected clients. This approach results in high tenant retention, properties that are in demand and asset growth.
If you are interested in hearing how CPP’s Property Management service can help you build stronger relationships with your tenants, email me today. My initial consultation is always free.
Regards,
Kirstin
