THE SIMPLE GENIUS OF THE 13-MONTH LEASE

Some commercial property investors can be like moths to the flame, lured by the promise of high rental returns, longer leases, consistent cash flow and a notable absence of outgoings. However, owning commercial property in Sydney isn’t all milk and honey.

While it’s true that commercial properties can yield greater annual returns than their residential counterparts, they can also suffer from longer periods of vacancy. And nothing halts your cash flow like an absence of paying tenants.

But all isn’t lost. If you own commercial property in Sydney, there are a few fundamental ways you can avoid vacant periods, including what agents call the ’13-month lease’ concept.

What is the 13-Month Lease?

The primary aim of the 13-month lease is to safeguard your property against vacancy, before it occurs. It’s a strategic leasing technique that is used when letting a property in traditionally slower periods, like December.

Say an agent is battling against a low-interest market in the slow month of December. If they do find a tenant, they may be tempted to draw up a lease of a conventional length (say, 12 months). However, doing so will potentially leave the property vacant in December the following year – creating a vicious circle of vacancy in periods of low interest.

On the other hand, drawing up a lease of 13 months can mean a potential vacancy in January, which is traditionally a month of far greater market interest.

The 13-month lease is an incredibly simple and effective way that commercial property agents can lease strategically. However, it’s not always enough.

How Else Can I Avoid Leaving My Property Vacant?

There are a few other fundamentals in reducing the chance of lengthy vacant property periods:

1. Retain Great Tenants

Want to minimise vacancy? Don’t lose your tenants in the first place. Of course, this is a far more complicated matter than that, but if you currently enjoy the cash flow of great tenants, you should do all in your power to ensure they renew or resign.

Simple gestures of goodwill like forgoing a rental increase, including gardening in the rent, or simply taking the time to forge a friendly relationship with the tenants will go a long way.

2. Price to the Market

Property owners can be like a proud parent, sternly believing it’s simply the most desirable space in the area and thus demanding top dollar. Even while your property might be kept in great condition and marketed effectively, nothing can deter prospective tenants like high rent.

Beyond the fact that high rent may not fit into your tenant’s budget, people are generally tentative to pay the lowest or highest price on the market – opting for the middle ground instead. Further, there have been numerous studies on the “power of number 9” – whereby consumers perceive $99 more favourably than $100.

This doesn’t mean asking for a weekly rent of $999 instead of $1000, but going for $990 or $985 can do wonders for a tenant’s perception of affordability.

3. Dress to Impress

It goes without saying that your property has a better chance of attracting great tenants if it looks incredible. And this doesn’t necessarily require marble staircases, gold leaf wallpaper or even new carpet – clean, fresh and ripe for transformation will do the trick. You can read up on how to effectively dress up your commercial property (without breaking the bank) here.

So while the 13-month lease can be an easy way strategic agents can minimise the chance of damaging vacant periods, it’s not the only measure that will solve the problem.

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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