Land­lords get creative as re­ces­sion bites

Weekend Argus (Saturday Edition) - - PROPERTY -

ANY­ONE driv­ing through the CBDs of cities, the ma­jor com­mer­cial nodes or walk­ing through shop­ping malls will be­come aware that va­can­cies are grow­ing, says Tony Clarke, MD of Raw­son Prop­er­ties.

“As al­ways in eco­nomic down­turns, a sur­plus of space is putting rentals un­der pres­sure. Ten­ants are in­creas­ingly aware that reg­u­lar eight or nine per­cent an­nual rental in­creases now make their premises more ex­pen­sive than oth­ers newly avail­able on the mar­ket. They are likely to move on once their leases ex­pire. Land­lords, on the other hand, are faced with the dif­fi­cult sit­u­a­tion that if they lower their rents to meet mar­ket con­di­tions and at­tract new ten­ants to their va­cant spa­ces, their ex­ist­ing ten­ants will soon also start de­mand­ing rental drops. The sub­se­quent loss in rev­enue to land­lords can be dis­as­trous be­cause over the past 24 months new leases have of­ten been at 15-20 per­cent dis­counts. With ten­ants now clearly hold­ing the whip han­dle, land­lords have to be creative.

“Many are re­duc­ing the new ten­ants’ short-term costs but com­pen­sat­ing for this down the line. For ex­am­ple, in the ini­tial two years the lease might be at a dis­counted rate, and on the bal­ance of the lease pe­riod the ten­ant pays a pre­mium to catch up. We find that un­less the ten­ant is a blue-chip com­pany with a lengthy lease, land­lords are of­ten re­duc­ing ini­tial fit-out costs as well.”

Clarke says land­lords must do their best to hold on to their ex­ist­ing reg­u­larly pay­ing ten­ants.

“Land­lords should bear in mind that good ser­vice, good main­te­nance and good fa­cil­i­ties (es­pe­cially park­ing) will of­ten in­duce ten­ants to ac­cept higher-than-mar­ket rents.”

Care should be paid to con­trol­ling the ex­tra costs dis­trib­uted among ten­ants. Cost cuts achieved by the big ser­vice groups of­ten make it cheaper to out­source man­age­ment and main­te­nance.

Clarke says traf­fic con­ges­tion and petrol costs have led to many ten­ants seek­ing premises nearer their homes. Se­cu­rity and a lik­ing for leafy sur­rounds have boosted the at­trac­tion of en­closed, guarded parks and the dra­matic de­mo­graphic shifts among of­fice staff have made offices close to rail­way or bus sta­tions very pop­u­lar. In Gaut­eng the new Gau­train and rapid bus sys­tems will prove at­trac­tive.

“For the fore­see­able fu­ture, land­lords will have to give their prod­ucts some­thing ex­tra in rent re­duc­tions or other ser­vices if they wish to sur­vive. Ten­ants should now se­cure long leases at good rates.”

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