New commercial real estate owners might realize they’ve bit off more than they can chew if they have never owned commercial property. However, learning the ins and outs of the business ensures success and profitability.
While commercial properties share some similarities with residential real estate, landlords must overcome unique challenges. These six tips for owning commercial real estate — from implementing landlord management software to vetting tenants — will set you off on the right foot.
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1. Know Your Property
As a first-time landlord of commercial real estate, you’ll quickly realize your investment demands different management approaches than residential buildings. What are the physical areas in your commercial structure and what companies and industries will occupy those spaces? Schedule routine inspections and keep detailed records of its conditions, use, and specifications.
Other things to consider are where the exits and entrances are, each floor’s safety equipment, and which locations tenants will occupy. You want to go into this business with eyes everywhere.
2. Make Green Upgrades
Making upgrades to your commercial property is recommended, but make them green. Prospective tenants are eager to improve their environmental and social responsibility. As such, they’ll likely want their workspace to reflect their sustainability goals and initiatives.
LEED-certified buildings report a 4% higher rental premium and 1%–17% higher rental rates, making sustainable and energy-efficiency upgrades a high-priority incentive for landlords. Tenants benefit from energy savings as much as landlords, and often see greater employee productivity and performance. Energy-efficient upgrades include adding LED light bulbs, installing a programmable thermostat, and adding low-flow toilets and sinks in bathrooms.
3. Ramp Up Security
Implementing advanced security solutions should be the first item on your list as a new commercial real estate owner. Knowing who enters and exits your commercial property is critical to prevent trespassers or building misuse.
Twenty-two percent of break-ins occur at back-door thresholds, while 34% occur at the front entrance. Ensure camera systems are set up at the main entry points to catch criminals in the act.
Of course, remember to also install them on your property’s grounds, including parking lots and common areas. Should someone’s vehicle get damaged, it will be easier to determine what happened with camera footage. Likewise, security measures can also aid you during emergencies — for instance, evacuations, breaches or more dire situations.
4. Utilize Landlord Management Software
Integrating landlord management software to oversee your commercial property will streamline operations and improve efficiency. Property management tools automate mundane tasks, organize data, manage transactions and provide valuable insights to stay abreast of trends.
Every program is slightly different and offers various features to make commercial property management less of a juggling act. Some items to look for in landlord management software include the following:
- Monthly expenses
- Rental income rates
- Turnover rates
- Maintenance scheduling and work order submissions
- Calendar management
Commercial management software like STRATAFOLIO integrates with QuickBooks for smoother operations under tight deadlines. A sufficient program should also enable bulk invoicing, maintain lease agreements and liability insurance, and report on CAM reconciliations.
5. Vet Tenants Carefully
Bad tenants will make the landlording experience quite miserable, so be sure to vet them well. A good tenant ensures profitability and less stress. Commercial real estate owners can begin vetting with extensive background and credit checks.
It’s best to meet potential tenants in person or through video calls to make interactions more personal. Accepting tenants with robust business models is crucial — a financially secure shop is one less thing for you to worry about.
Request tax returns, operational reports, credit documents and more for review. Also, check whether the company has faced prior legal problems.
6. Improve Tenant Satisfaction
The COVID-19 pandemic and transition to remote and hybrid working conditions may have changed commercial real estate forever. According to McKinsey, major cities still have a 10%–20% urban vacancy rate after pandemic lockdowns, even as more companies call employees back to the office. As such, office space demand could be 13% lower in 2030 than in 2019. Under extreme scenarios, demand could decrease by thirty-eight percent.
However, a study from Maastricht University in the Netherlands showed tenant satisfaction could improve your bottom line. Per the study’s survey, a one-point increase in overall satisfaction indicated an 8.36% higher chance of lease renewal and an 11.52% likelihood of recommending the property to others. Unsurprisingly, location, building characteristics, indoor air quality, sustainability and property management played into respondents’ considerations.
Become a Pro at Commercial Property Management
First-time commercial real estate owners must overcome the learning curve of managing retail space. However, they will discover smoother operations after strategically approaching their new endeavor with the help of the latest technologies and upgrades.
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