Income Growth in Commercial Real Estate

August 10th, 2020 by admin Leave a reply »

Every commercial property will have income streams. The question is, are they all optimized and utilized. In this market the income streams for commercial property are so important to the landlord and the financiers for the property. A property with multiple and well protected income streams will more easily ride out the economic challenges of this market.

In markets like this the real estate agent with the highest service value to landlords, is the one that helps strengthen and optimize the income streams across the property where ever possible. If you like it is a mindset that the real estate agent brings to the market.

In case you haven’t noted yet, many real estate markets are starting to sort out the economic challenges and the ‘cashed-up’ investors are on the ‘prowl’. So who said the market was ‘dead’? The reality is that the commercial real estate market is starting a new cycle. In 12 or 18 months the momentum will be well underway.

So let’s get back to the main point of this discussion and look at income optimization. By definition it is the identification and activation of all income streams that can be realistically charged to the tenants as part of their building usage. In other words the simple lease rent is not the only thing that you can get for the landlord.

Look ‘outside the square’ and know that utilization of the asset by the tenant in all ways has to be paid for. Also give due regard to any laws and legislation that may be special to the property or your location and could limit or direct the way you raise rental charges. We say this here because ‘Retail Shop Leasing’ in many locations stipulates how you raise and declare rent charges to tenants. Just be careful with this and when in doubt see a good property solicitor to give you guidance.

The Income steam focus is twofold:

Quality – The strength, term, and type of leases, rents, and tenants.
Quantity – The amount of gross and net income achieved, and its relativity to other market rents, and its potential to increase.

The income stream covers all the types of income on a given property, some income being less secure than others. Income can typically be from:

Leases for occupied areas
Rent review structures that provide growth in the lease rents
Auto tellers operating on the property
Public telephones in common areas
Outgoings management and savings
Internet kiosks for the visitors to the property to use
Advertising on and in the property
Fitout rental for any existing fitout that is owned by the landlord and the tenant is now using
Rental for monthly or casual leased space
Rent types such as gross rents, net rents, that are strategically selected for new leases given the existing levels of outgoings
Licences for special areas of occupancy such as storage, signage, antennas on the roof, extra area use such as outside dining beyond the demised leased premises
Car park fees for permanent and casual parking
Expenses that are recovered from the tenants such as cleaning of tenants space, and electricity usage within the tenancy space
Casual leasing of special areas and common areas
Communication sites and antennas on the roof of the building
Riser charges where any cable is laid for tenants
Establishment of kiosks and smaller tenancies in common areas
After hours air conditioning on an hourly basis

This list should not be viewed as the only income streams that you can tap for the landlord. It may be that your property will have other opportunities that can be optimized. Importantly you look for them and implement them wherever possible.

John Highman is a prominent investment real estate speaker and coach that helps real estate agents and real estate brokers globally to improve their commercial real estate market share and performance. He himself is a successful real estate agent that has specialised in commercial, industrial, and retail real estate of all types for over 30+ years.

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