It’s all about attracting tenants

But what happens when your property is not in a great location? It may be set back from the high street or in a less attractive area.

Landlords often work with tenants to increase the desirability of these units and make them work for traditional and new ventures which test the market. The rise in the escape room trend is a recent example of new uses. 

The current financial climate is likely to mean that in the next 6-12 months we’ll start to see an increase in vacant commercial properties in all locations.

So, what can landlords do to attract great tenants and avoid paying rates and insurance costs on empty properties in less than perfect locations or draw them to those locations that are just right in an unsettled market?

Rents

Whilst in the past landlords have agreed rent free periods as an incentive for new tenants at the start of a new lease term, tenants (especially those with new businesses) are now looking at more flexible approaches to rents.  

Landlords may consider leasing with a basic and turnover rent. A lower basic rent is paid throughout the term, with additional rent linked to tenant turnover being paid on top of this basic rent at the end of each financial year. When the tenant does well so does the landlord.  

Landlords and tenants share the risks and collaborate to work towards the success of the site. 

Alternatively, landlords may consider a stepped rent which increases year on year throughout the lease term, allowing the tenant the opportunity to grow a new venture or location.

Energy Efficiency

We’re all talking about increasing energy costs. Tenants are considering these potential costs when seeking new premises. From April 2023 all commercial properties must meet a Minimum Energy Efficiency Standards rating of E or higher (with further rating rises in the future).

Landlords could consider upgrading the property with insulation, LED lighting or double glazing to increase energy efficiency and reduce potential tenants’ costs. ‘Green’ or energy related clauses within leases would mean the landlord can cooperate with the tenant to maximise energy efficiency. 

Fitting out

For any landlord, limiting void times between incoming and outgoing tenants has significant financial benefit. White-box or CAT-A fitouts have been beneficial for pop-up units and are increasing in popularity for standard spaces and leases.

These fit outs provide tenants with a useable and functional space often with kitchen, bathroom, air conditioning, lighting and basic electrical services.  Therefore, tenants are less likely to undertake works before being able to start trading, thereby reducing fitting out rent-free periods.

Pop-Up Shops

Pop-up shops or short-term lettings have benefits for both tenants and landlords. Tenants can test out a new location before committing to a longer term or benefit from seasonal events such as Christmas or festivals.  Landlords will avoid empty property rates (if let correctly) and generate income to help with property repairs and insurance costs.

A rent enhancement can be agreed to reflect the short-term nature of the letting or specific seasonal periods. Short-term letting can also be considered to fill any void periods between outgoing and incoming tenants who are letting the property on longer term leases.

Greater flexibility

It is not uncommon for commercial leases to contain a tenant’s break on the fifth anniversary of the term or for with leases under five years a break at the third anniversary or no break at all.  

For any new business, taking on a lease can be a significant financial commitment. By granting a specific short term followed by a rolling break option for the rest of the term, the landlord can offer the tenant peace of mind in case of unpredictable future problems. This option may make the property more desirable for new businesses.

Making properties enticing for tenants whilst still being financially beneficial for landlords can be a tricky balancing act. However, some small changes to the property or lease may help landlords attract great new tenants. 

You can call Amy on +44 (0)1733 887 640 or email aelynch@greenwoods.co.uk