Tenant retention is vital

Posted On Wednesday, 01 May 2002 10:01 Published by
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Tenant retention is a key factor in achieving maximum returns on a landlord’s investment.

Tenant retention is a key factor in achieving maximum returns on a landlord’s investment.

Lease renewals are a vital service carried out by property management companies. Valuable time is spent negotiating rental renewals with tenants well before the renewal date. Thus protecting the property owners from the possible loss of tenants, who may be enticed into relocating.

 

According to Kim Fraser, senior portfolio manager at the JHI Real Estate, Bellville office this in turn would not only create a loss of income due to a possible vacancy but amounts to an expense to the property owner. Costs such as a 100% commission payable on new leases negotiated on behalf of the landlord and the possible upfront cost of tenant installations contribute to these expenses.

 

“The above-mentioned possible loss of income and additional expenses could amount to anything between 8% - 10% of the total lease value on a three to five year new lease - taking into account an initial two to three month vacancy.”

 

“By comparison, on a lease renewal - the commission of 50% of tariff payable by the landlord results in a 1% to 2% cost of total lease value on a renewal of three to five years. Ultimately saving the landlord between 6% and 9% on that total lease value.”

 

Clearly, the loss of many tenants in any property portfolio would affect the maximum return achievable on the portfolio.

 

“Many property owners have become accustomed to paying commissions of between 40% and 50% of tariff for lease renewals, others still need to. However, I believe this will happen when they realise the role tenant retention plays in maximising returns on their properties,” concludes Fraser.
Publisher: JHI Real Estate Ltd
Source: JHI Real Estate Ltd

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