Like it or not, energy forms a significant percentage of property operational costs today. In any retail or commercial investment property the common area power will drain a lot of profit from the landlord’s net income.
In simple terms the energy consumption factors of any investment property should be carefully controlled and optimised. That is one of the main jobs of the property manager to focus on; to improve the property performance financially in a realistic and professional way. In saying that, there are a few strategies that can work very effectively and directly in improving energy consumption and costs as part of the overall investment property performance.
Set Some Energy Strategies
Here are some ideas to help:
- CONTRACTOR MEETINGS: Meet with your maintenance contractors regularly as they will have some valuable ideas to share about the operational systems of plant and machinery. They understand the equipment better than anyone else; they will know what can be done to improve energy use whilst not overly impacting occupancy conditions in the building.
- THE COST OF ENERGY: Buy energy at the best commercial rates. There are different suppliers of energy in most towns or cities. They offer certain economies and purchasing power when it comes to energy.
- DEMAND TIMES FOR ENERGY: Understand your peak demand periods. With any office or retail property there will be certain periods of peak energy demand during the day and during the week. Those periods generally do not change, but how you purchase energy at those times will impact gross costs.
- CLIMATE CONTROL AND AIR CONDITIONING: Review air conditioning operations. The air conditioning plant in any investment property will consume a lot of power. In winter and summer those demands will shift depending on your typical outside climate and building design. In conjunction with your air conditioning maintenance contractors you can review special internal climate strategies such as delayed starts, optimal starts, outside air use, and night purges.
- AFTER HOURS CYCLES: The after-hours use of air conditioning, lighting, and the building itself will put demands on operational costs. Some of those use factors will be recoverable from the tenants in the building.
- LOW COST LIGHTS: Lighting modifications can occur to common area globes and tubes so that common area lighting costs are reduced. Understand how lights function in special common areas such as car parking, entrance foyers, and toilets showers. Sensor lights and LED hardware will help in saving costs.
- MOVING PEOPLE: Lifts and escalators are a big drain on power consumption. Whilst they are essential for the movement of people in a building, they could be partially shut down after hours. For example consider a high rise office tower; there is no point running all lifts in the lift banks if the building is largely empty. You can park lifts after hours and only run one lift in each bank in an office tower. The occupants will very likely not be impacted.
So these simple factors of building use will have a great impact on energy consumption and savings in any investment property.
In every investment property there will be factors of change to manage and implement. In any year the pressures of the tenancy mix and the requirements of the current property ownership will generate change in property performance. In saying that, every investment property should have a business plan that takes into account the strategies of the landlord when it comes to investment outcomes.
Here are some ideas to help you track and manage change within any commercial investment property.
- Lettable space – the lettable space within the building should be optimised in a number of different ways. To do that you can move tenants around subject to the timing of leases, and the negotiations with existing tenants. To establish that level of control, you can create tenant retention plan and leasing strategy for the property. In that way you can allow for expansion and contraction requirements within each tenancy. You can also allow for the pressures of an upcoming known vacancy. If you have a high quality tenant in occupancy, it pays to help them rather than frustrate them when it comes to occupied space. A good tenant needs to be retained rather than lost.
- Renovation and refurbishment – with any investment property there will be times where renovation and refurbishment activities will need to occur within the asset. That can be a complex process given the number of tenants in the tenancy mix and the types of customers visiting the property. In any office or retail property you will find that the renovation or refurbishment concept needs to be carefully planned and managed. The effects on tenants and customers from any renovation program should be controlled at all times. Failure to do so will see a potential loss of rental and a business threat to existing tenants.
- Better tenants – understand the tenants that you have within the tenancy mix. Some tenants will be better than others when it comes to brand, marketing, rental payments, and business magnetism. Some tenants will draw business to the building and in that way encourage the overall levels of trade and exposure for other tenants in the mix. Understand the differences between your tenants, best locations for each tenant, and the clustering factors that can encourage better levels of trade and customer attraction.
- Rental upgrades – throughout the year there will be a need to assess market rentals as they apply to the location, the tenancy mix, and the property type. Rental expectations should be strategies set within the business plan for the property. Every rent review coming up over the financial year should be estimated, established and negotiated on factors within the lease document and the prevailing levels of market rent.
- Lease documents – every lease document should be reviewed for complexity and critical dates. There will be certain terms and conditions in every lease document that will have an impact on occupancy and income expectations. Some lease documents will therefore be better than others when it comes to property performance and investment results. Before you embark on any change management activity, understand the lease documents that you have currently in the property and how those lease documents will respond through the upcoming project or expected change.
- Property strengths – every investment property will have strengths and weaknesses to be understood and addressed. Any change management program should allow for an improvement in property strengths and a resolution of any weaknesses. The weaknesses can generally be removed by modifying the tenancy mix, upgrading lease documentation, and undertaking a renovation or refurbishment project.
- Improvements and services – in providing property improvements, amenities, and services to the tenants in any investment property, understand how factors of technology may be changing locally when it comes to business function and occupancy. Any modern investment property should be maintained in a way that allows for gradual improvement and upgrade when it comes to technology and tenant occupancy.
- Moving tenants – don’t be afraid to move tenants around when lease advantages and requirements are noted in the tenancy mix. Some tenants will be more successful when located to other premises within the same building. There will also be pressures of change when it comes to tenant or business expansion and contraction. Look at the clustering factors applying to the tenancy mix. Some tenants will be much more successful when placed near complementary tenants in the same building.
- Anchor tenants and specialty tenants – anchor tenants are usually those that occupy large parts of the property for a considerable period of time. The rental structure for anchor tenants will be totally different to that of specialty tenants; the levels of rent that apply to an anchor tenant will usually be less per square metre or per square foot than the rent paid by a specialty tenant. A good anchor tenant will help you attract specialty tenants and lower the vacancy rate. The strategies that apply to the two tenant types will be different and should be merged into the tenant retention plan for the property.
So there are some good things that you can do here when it comes to managing and optimising change within your commercial or retail investment property. Understand the property as it exists today, consider the prevailing market conditions, and look for the opportunities that can be created over time for the property owner. That is how you improve an investment property. Bring together the strategies of a business plan, a tenant retention plan, the lease marketing strategy, and the tenancy mix.
Lease administration forms part of the leasing and management services offered to Property Management clients in commercial real estate today. It is a specialised service and has major impact on the property under management.
The real estate agency staff involved in the management and leasing of a commercial or retail property, really do need to know what they are doing when it comes to lease administration. When done well the process will help the landlord client achieve income and tenant benchmarks in the property that would otherwise fall short of expectations.
Why do things in investment properties need to be ‘administered’? The answer is quite simple; the market is constantly changing and expectations of the tenant mix, income, and local area will change. Top agents work ahead of the changes and they know what is going on in all comparable properties.
Here are some factors that you can merge into your lease administration system for your clients.
- Review all leases as a priority. In this way you will know what is coming up with each tenant and occupancy. When you are managing and leasing larger properties, the task is complex. For this reason, any lease review should involve a ‘synopsis’ process where key issues from the document are extracted and noted in an appropriate document and diary system. In this way you can be prepared for the major events well before they happen.
- Check out the rent reviews coming up for each tenant. The market rent reviews will be the hardest to predict and negotiate. Any market rent reviews should be flagged for early attention. You will need some good comparable market rental evidence from the local area and this takes time to locate.
- Options for lease renewal can be a good and a bad thing, depending on the property, the tenant, and the landlord. Leases should have an early window of time where any option that exists can be negotiated and finalised. In high quality shopping centres, the process of giving an option for a further lease term is not desirable; it places far too many limitations on the tenant mix and how the client landlord can work their shop ‘clusters’. As a general rule, any top quality property should not give ‘options’ as a standard offering in any lease negotiation.
- All leases will have factors that need action at some time during the year or the lease term. Typically those things are insurance certificates of currency, rent reviews, options, renovation dates, and make good provisions. Get to know your leases so the critical dates area correctly actioned well in advance.
Attention to detail in lease administration is really important. This means that all actions and correspondence should be correctly recorded and implemented. All of this action should be supported by a good property management and leasing fee.