A vacant commercial property will destroy your ROI in mere weeks. For every month that passes by – and commercial properties can sit vacant for many months – you can say goodbye to 8.3% of your yearly income. That’s why we firmly believe that the best tenant is the one you already have.

But how do you attract, and then keep, quality tenants? In the article we’ll give you some actionable tips to help you do both.

What Makes a Quality Tenant?

First, let’s take a look at what makes a good tenant.

A good tenant should live up to their commitments in three main areas:

  1. Rent
  2. Outgoings
  3. Maintenance

Rent is self explanatory. A tenant who pays on time every month is a fundamental requirement in commercial property.

Outgoings are often paid for by the tenant in a commercial lease. Outgoings include council rates, water rates, land tax, insurance, and other expenses associated with your property. Although a late payment of outgoings is just as serious as late rent, we find that tenants continue to neglect these invoices. A good property manager can keep on top of this for you.

Everyone knows that commercial tenants need to “make good” at the end of their lease. That is, return the property to it’s original condition. But most leases also require the tenant to keep the property in a good state of repair throughout the tenancy. It’s not good enough to leave it until they move out. Again, a diligent property management team will pick up on any maintenance issues during routine inspections.

How Do I Attract Quality Tenants?

So we know what makes a good tenant. But how do we attract them? Here’s what we would recommend…

1. Presentation

We’ve written before about what tenants are looking for in commercial properties. The key takeaway is that presentation is important! It’s second only to the functional suitability of the space.

Make sure the property is clean and tidy. Don’t use it as storage, as tempting as that may be. A coat of white paint can quickly take an old interior and make it look new again.

Think of the tenant’s property search as a competition where you are competing for their attention. They will have a short list of properties, and you want to make sure yours is at the top. These suggestions, although small, will go a long way.

2. Get creative with the lease terms

A commercial lease is made up of dozens of clauses, all of which are negotiable. Here’s a few ideas to keep the negotiations open, even when you can’t come to an initial agreement on the rent.

  • Offer to cover some of their fit-out costs.
  • Offer a rent free period.
  • Propose a stepped rent, where the rent increases by $10,000 per year (for example) rather than CPI increases. This can reduce financial stress on the tenant while they build up their client base.
  • Offer a lease “subject to council approval” for their peace of mind.

Whatever you offer, keep in mind the effective rent, not just the face annual rent.

Advertise Your Property

To maximise the chances of finding a quality tenant, you’ll need to advertise your property. A property leasing agent will handle this for you. The campaign should include online advertising, a signboard and email marketing. Depending on the property, it might even be worthwhile reaching out to specific companies. For example, if you own retail property on a busy Sydney strip, think of the business that usually occupy these properties: real estate agents, mortgage brokers, convenience stores, restaurant chains etc. Reach out to their property departments one by one. Our property leasing team in Sydney has seen a lot of success with this tactic.

How to Keep a Quality Tenant

You’ve followed the advise on this site, got yourself a great property manager, and found yourself a quality tenant. Let’s make sure you keep them!

1. Communicate with your tenant

First and foremost, you need to communicate with your tenant. This starts with monthly invoices. Although you are probably not obliged to send them (check your lease) it’s always good practice and minimises your chances of late payments. If you don’t have the time or inclination to build a relationship with your tenant personally, take advantage of a property manager.

2. Act fairly and according to the lease

The goal of any commercial property investor should be to earn a good return on their investment, not to get one over their tenant or win some argument just for the sake of winning. I see this time and time again.

All but the most complicated of scenarios can be solved with a quick look at the lease. If you are disagreeing on a particular maintenance issue, just revert to the lease. Who is responsible? If it’s structurally, then most likely it’s up to the landlord. If not, it’s probably the tenant’s responsibility. Don’t get drawn into subjective arguments and conjecture. Agreeing on the facts of the matter takes the emotion out of the argument.

Acting fairly means that you should expect the tenant to uphold their end of the bargain by paying their rent, paying any outgoings, and maintaining the building. Fairness also means you should uphold your commitments as well.

Small Acts of Kindness

Every now and then it can pay to go above and beyond your lease obligations. Recently, a client’s property in Sydney was damaged when the tenant reversed over the water meter in the front yard. The lease was clear in the case: it’s the tenants responsibility to fix it. However, we all decided that the meter is not in a good position to begin with. The tenant paid for the damage, and the landlord agreed to pay about $900 on top to relocate it away from the driveway. It was a win-win. The owner now has a meter that’s not going to be damaged again, and has shown some good faith to the tenant.

To read more about how commercial property owners can minimise vacant periods, download your copy of our free eGuide, ‘How Commercial Property Owners Can Avoid the Vacancy Plague’ below:

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