Down time in commercial leasing occurs when the property is not generating any revenue. The property has been vacated by the former tenant and is available and awaiting the new tenancy.
In the current economic climate, it is very important to reduce down time to an absolute minimum without jeopardising the landlord’s objectives. The longer the property stays on the market, the greater the landlord’s financial exposure and vulnerability. In addition to the normal costs associated with re-leasing a property and the incentives that may be offered to encourage a prospective tenant to commit, down time is a further and very significant financial burden on the landlord.
It is very important to start developing a re-leasing plan as soon as the notice from the vacating tenant is received. Formal notification is usually received three months prior to the end of the term however; there are often present and obvious signs that can act as indicators before any written notice is given. For example; unusual or lack of activity on the site, reduced working hours or shrinking employee numbers could all be indicators of the tenant’s intentions.
The landlord must be informed of coming changes as early as possible. Instruction has to be obtained about the marketing plan, objectives to be achieved and actions to be taken to re-lease the property successfully. Desirable and feasible rent has to be determined and a profile of the suitable tenant discussed, taking into consideration current market conditions, comparison with other available properties and the landlord’s long term aspirations. If the asking rental price is too high or unrealistic, or there is no flexibility to meet the needs of the tenant, interested parties will walk away and consider other available premises. These are issues which could significantly prolong costly down time.
Time between occupancies could be used to refresh or repair the property. Simple and relatively inexpensive projects such as graffiti removal, fence repair, car-park line painting and landscaping all help to improve the attractiveness of the property and speed up re-leasing.
Down time is often challenging and demanding and is the time when an experienced property professional could be the difference between a successful transition and long term struggle to recover.