When it comes to owning and managing a commercial property, there’s one challenge that’s extremely important and never goes away: tenant retention. It could be the most vital aspect of managing a commercial property (outside of finding tenants, of course). Your success will almost certainly be dependent on your ability to find good tenants, keep them paying rent, and avoid vacancies and turnover.
From a financial point of view, mitigating turnover and boosting retention can dramatically improve your cash flow and profitability. The question is, where do you start? We’ll explore all of that (and more) in this article.
Understanding Tenant Turnover
Tenant turnover occurs when a commercial tenant ends their lease or decides not to renew their lease at the end of their current agreement. The causes are diverse. They range from very practical needs – such as more square footage or a new location in a different area of town – to conflicts or challenges with the property – such as outdated facilities, excessive lease rates, or conflicts with property managers or other tenants.
“Tenant turnover is expensive,” Pride Industries explains. “On average, it costs around three months’ rent—and that’s on top of vacancy-induced rent loss. Each time a tenant leaves a property, it must be thoroughly cleaned and returned to pristine cosmetic condition. Then there are administrative costs, advertising costs, and costs associated with showing the space. To mitigate these expenses, the obvious answer is tenant retention.”
The need for reducing turnover and improving retention is obvious. The difficult part is figuring out how to do it.
4 Practical Ways to Improve Tenant Retention
You’ll never have a 100 percent retention rate. There will always be mitigating circumstances and factors outside of your control. You can, however, significantly improve retention by making some proactive decisions.
Here are a few ideas:
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Improve Your Screening
The first step in improving retention is to bring on the right tenants from the start. This requires a very specific and thorough screening process.
A rigorous screening process should involve reviewing potential tenants’ financial stability, business reputation, and past rental histories. This will help ensure that the tenant can consistently meet the lease obligations and maintain a positive presence within the property.
If you don’t feel like you have a good screening process in place, or maybe you aren’t sure how to improve in this area, you may consider working with a commercial property management company to help you develop a strategy.
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Build the Relationship
Many tenants choose whether or not to renew their lease based on the relationship they have with the property manager or owner. If they feel comfortable, respected, and supported, they’re much more likely to stick around than if they feel disrespected.
Make it a point to proactively build and nurture relationships with tenants. This means checking in and having regular communication. If there are any changes going on with the property, be sure to provide quick and detailed updates. It’s better to over-communicate than to say nothing at all.
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Maintain the Property
Think about a time when you’ve rented a house or apartment. (Maybe you’re currently renting or it was years ago.) How frustrating was it to deal with little issues that the landlord wouldn’t fix? Whether it was something small like a dripping faucet or draft window, or something bigger like an AC unit that stopped working or peeling paint.
Even the smallest issues with the property can be a turn-off for tenants. Do your best to proactively maintain the property and invest in upgrades when they make sense. This will have a bigger impact than you realize on retaining the right tenants. When it comes to roofing, consider the benefits of a commercial tar and gravel roof. This type of roof is known for its durability and ability to withstand harsh weather conditions. It is also cost-effective and relatively easy to maintain. By investing in a commercial tar and gravel roof, you can ensure that your property remains in top condition, attracting and retaining tenants for years to come.
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Stay Competitive
While it’s important to maintain profitable lease rates, they should also be competitive within the market. Regularly review market rates to ensure that your rates are fair and offer good value for the space and amenities provided.
Lease agreements should be structured in a way that benefits both the tenant and you, the property owner. Consider including provisions that incentivize long-term leases, such as graduated rent increases or options for lease renewals at favorable terms.
Adding it All Up
As you can see, improving retention rates isn’t something that just happens by accident. It requires a proactive approach and the right attention to detail. Hopefully, this article has supplied you with at least a couple of practical takeaways that you can use to make smart changes right away. Good luck!
Interesting Related Article: “What Are the Risks Associated with Real Estate Investing?“