Stable tenants, uninterrupted cash flow and excellent ROI – it’s what every commercial landlord wants. And in a buoyant market, it’s what you should be getting.
But what happens when the going gets tough and the market takes a downturn? And your tenant’s business is starting to look a little shaky?
Communicate early and often
The key to surviving in a downward market is to maintain cash flow. Savvy landlords stay abreast of their tenants’ businesses, especially if there’s only one or two on the books. Ultimately, if your tenant’s business has a problem, then so do you. And with so much vacant commercial property in Melbourne, the last thing you want to do is add yours to the market.
Instead, communicate with your tenant. Understand where their business is at. Speak early and often if their business starts to experience a downturn and talk about strategies for either keeping them in the lease or exiting them with a plan that works for both of you.
More often than not, tenants will not want to break a lease and will try to work through tough conditions until the market changes.
Keeping a good tenant in the lease can be better than losing them altogether and starting again to find a new one. Be creative and work with your tenant to find a solution.
If you’re uncomfortable with negotiating – because you’re either too close to the tenant or it’s just not your strength – the experts at HKC can help. We negotiate leases all the time for our clients and ensure a sustainable and equitable win-win outcome for landlord and tenant.
Make an exit plan
Communicating openly and honestly with tenants about a possible exit plan is vital. It allows the tenant to prepare for leaving the property while you get to commence marketing it for lease earlier.
A repayment plan or even rental abatement may be part of the exit strategy. Once again, the name of the game is maximising cash-flow by minimising vacancies.
Take a long term view
Maximising returns is always the goal but commercial tenants stay longer when rent is sustainable, even when the market tightens. It’s not always in a landlord’s best interests to squeeze more juice from the lemon.
Landlords that keep their tenants in a downturn hold on to them because they asked for sustainable rentals to begin with.
Importantly, a long term tenancy positively affects the capital value of the property when it comes to selling. The term a tenant has occupied the property for is one of the first things an investor will look at. And If you have stable, long term tenants, your commercial property will look substantially more attractive.
Ultimately, every landlord needs to think strategically about the type of tenant they take on and understand whether their business will succeed or fail in the longer term. You can read more here about the changing face of Melbourne’s commercial leasing and how yoga studios, gyms and restaurants are taking over the local shopping strip.
Need advice? Talk to the experts at HKC Property Consultants. We’re happy to prepare a strategy for your next lease or help you find new premises to invest in. Call now 03 9078 4794.