In the world of real estate management, wouldn't it be convenient to hear that there was one tried and tested Leasing Analytics tool to suit every project? A one-size fits all solution where you plug in your data and out pops the answer? Well the simple truth is, there isn't.
When it comes to Leasing Model Analytics, there are no black and white areas, no right and wrong answers. In terms of evaluating the financial metrics of a lease, there are a variety of quantitative tools available, specifically in relation to Term, Revenue/Rent, NER, NPV, Rent Comparisons, ROI and Payback.
You can also access tools which focus on extra costs - it's important to take into account some of the hard capital costs involved, whether it's tenant allowances or landlord work. This could include anything from replacing an air-conditioning unit to a total refurbishment, depending on the situation. At the end of the day, these expenses can be substantial. Brokerage fees are yet another cost that needs to be quantified. As well as interest costs related to any financing that is required.
With so many variable factors, it all comes down to your company's specific strategy; your long-term vision. The nature of real estate management brings with it a whole plethora of non-quantitative factors too. In the retail sector, for instance, here are a few factors which come into play. (As you will probably see, my focus is specifically within the retail sector, but much of this applies whether you're in commercial or retail.)
- Increased foot traffic. One can't underestimate the 'pull' factor of certain brands or retailers, and the benefit to your retail space overall.
- Restrictive contracts. It's not unusual for tenants to try to enforce certain provisions which could be restrictive for your business in the long run.
- Credit worthiness. It may be no-brainer, but there's a reason everyone prefers a tenant with a sound credit record.
- Balanced tenant mix. Always ensure that your tenant mix reflects the retail needs of the community which you serve.
- Simple is good. Wherever possible, avoid complex lease agreements. This benefits everyone – tenants, leasing agents and the legal guys. What's more, simpler leases are typically easier to automate.
- Avoid restrictive contracts. As I said earlier, wherever possible, try to not tie yourself into restrictive contracts. Short-term gain could have long-term implications.
- Be proactive. In order to optimise revenue, make sure you stay one step ahead when it comes to keeping space filled. Always try to identify opportunities before a tenant's lease draws to an end.
- Partner through thick and thin. It makes sense to create a strong partnership between tenants and landlords. Support tenants where possible to ensure that they don't fall behind on their rental, which in turn would impact negatively on your cash flow.
While it may feel like one big grey area, there is one rule of thumb I know for certain. Always make sure that your leasing agreements are in line with your long-term business strategy. If you can remain loyal and committed to what lies at the heart of your business, you'll be reinforcing the very foundations that will take your company into the future.