When you have lots of vacancies in a commercial or retail property it is wise to develop specific initiatives to work through the vacancy challenge in a productive way. You can do this through an incubator leaving program.
It is no secret that some locations and cities have an abundance of vacant property at the moment. Specific solutions and issues are required to create inquiry and tenant occupancy. Landlords require specific assistance to resolve a high vacancy levels.
Commercial and retail property agents are best placed to provide the right strategies in marketing and leasing. That being said, any leasing appointment of an agent on a quality property should be on an exclusive basis. There is a significant amount of work required to lease a property today and an exclusive agency will allow that time commitment to occur.
As the word incubator infers, you are potentially growing a tenant through a life cycle to encourage them to a full growth and occupation within the property. The conversion of an incubator tenant to a successful tenant takes time, but when the property market is slow or challenging, the strategy becomes useful and realistic with difficult properties and those with excess vacancies.
There is no point having an extended vacancy in a property for the long term. Loss of rental and outgoings recovery can become significant over time. Some landlords fail to adjust to the current market circumstances and take a huge financial hit simply because they fail to adjust to the prevailing economic circumstances relative to the property type and the location.
How long does it take?
It takes about 12 months to convert an incubator tenant to a normal fully operational business tenant. By that time the incubator tenant should be on full market rental and an established long term lease.
Here are some tips for implementing an incubator leasing program in a property or in an area with lots of vacancies:
- Get to know the local business community intimately. Understand where the successful tenders are located and in what properties. Determine why they are successful, and how you can influence them to consider your property as an alternative place of occupancy.
- Current tenancy mix factors need to be remembered when you are looking for new tenants. In the case of a retail property, you will need to source the right type of tenant that suits the balance of the tenancy mix and the position of the vacancy.
- A start-up rental will need to be established to get new tenants interested in occupancy. That start rental can be relatively low initially and ramp up over a period of six months. The low start rent should only be agreed on the basis of a longer term lease agreement with the lease heading to a full market rental and appropriate rent reviews.
- Incentives offered to the tenant should be in keeping with the prevailing market conditions. If the tenant has little local business experience or history, you will need to be careful in establishing and confirming that they have relevant experience and commitment to the longer term success of the lease. Inexperienced tenants are likely to leave the concessions when the business fails or struggles.
- Fit out plans and drawings should be agreed between the tenant and the landlord. The tenant should be providing a quality fit out in keeping with the presentation of the property.
- Lease terms and conditions should be agreed between the tenant and the landlord so that the occupancy is practical and productive over the lease term. Choose the right tenancy for the tenancy mix and ensure that the lease strengthens the landlord's investment position and cash flow.
- The tenant should not be allowed into occupation without correct and legal documentation being signed by both parties. Further to that the tenant should also have paid the necessary start up rentals under the lease agreement, together with the provision of appropriate bank guarantees to protect the landlord in the case of any default.
Any existing vacancy can be resolved through an incubator tenant being introduced to the property. Understanding the needs of the property and the landlord so that the appropriate lease documentation can be created and implemented.
Source by John Highman