Commercial Real Estate: How to Pick the Right Tenants

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Owning a commercial property can be a viable long-term financial investment. However, a landlord’s earnings are hinged on the tenant’s capacity to fulfil the lease.

Thoroughly vetting your potential tenants and their business prior to signing an agreement is essential if you’re wanting to achieve a positive return without any headaches. It’s also important to continue to monitor your tenant’s solvency throughout their lease to ensure you don’t end up owning a costly, vacant building thanks to a tenant who has gone bust.

Commercial Building
Commercial Building

There are a range of factors you should consider when searching for tenants for your commercial property. Here’s our top tips on picking the right tenants:

Check the tenant’s history diligently

You may be surprised at how many landlords neglect to do a thorough check on the potential tenant’s history. As much as we’d like to think everyone is trust worthy and honest, in today’s economic climate, you need to do you due diligence.

• Request at least three references from the tenant including past property managers and employers.
• Find out the tenant’s commercial property rental and payment history.
• Evaluate the tenant’s financials by going through their liability statement and list of assets.
• If it’s a new business, request a copy of their financial forecasts.
• Find out what their customers say online about the business.

Create an open dialogue

Creating an open dialogue is essential if you want to gain information about the tenant’s business and plans for your commercial property space. Tenants are much more likely to be honest and up front with you, if you’re approachable.

Commercial Property
Commercial Property

Ask with genuine interest about their business plan and model. Discuss what their ideas are for the fit-out of the commercial property along with a financial breakdown. Ensure they’re able to explain how they’re going to pay for the costs of re-location or setting up their business in your space.

Remain in touch with your tenant on a regular basis and if their rental payments are late, find out what’s happening immediately. If you address the issue early, you’ll less likely to lose out financially.

Negotiate when necessary

If you’ve been struggling to secure the right tenant for your property, perhaps it’s time you exercise your negotiating skills. Offering an incentive to your ideal tenant can help make your rental premises more attractive and set it apart from other properties in the area.

This could be by adjusting the proposed lease period or offering a rent-free period. You could also offer a financial contribution towards the fit-out, particularly if it’s for improvements that will increase the value of your property, such as air-conditioning or heating.

Commercial Property Space
Commercial Property Space

Don’t rush your decision

Owning a vacant commercial property can be costly, so it’s tempting to accept the first tenant that comes along. Rushing into a decision is often a short-term solution and neglects to look at the long-term viability.

Instead, take a cautious approach by making sure the tenant and their business fits well with the property and its location. Is their proposed image and fit-out going to suit the area? Will their tenancy enhance your investment long-term?

The right tenants for your commercial property will bring value to your investment. Their business model will suit the local marketplace and the brand should integrate well amongst the existing tenants of the area.

Putting in the time to secure the right tenant for your commercial property may seem like a lot of effort at the time, but it is the key factor in helping you meet your investment goals.