5 Ways to Attract New Commercial Tenants
Specializes in providing actionable insights into the commercial real estate space for investors, brokers, lessors, and lessees. He covers quarterly market data reports, investment strategies, how-to guides, and top-down perspectives on market movements.
This article was updated on 7/19/2023.
It's no secret that recent events have made it difficult to attract commercial clients. With 59% of current commercial tenants reported to be behind on payments, it's understandable that building owners are looking for new tenants.
Additionally, the office space sector is still in trouble thanks to the rising popularity of the work-from-home movement.
But if you're on the prowl for some new office space, you shouldn't let these numbers completely sway your decision. Should you choose to acquire office space, you can use these five tips to help attract the right long-term tenants for your building.
#1 – Offer A Rent-Free Period
After a year when profits have been directly impacted, the term “rent-free” is more than likely going to capture the attention of those looking to lease office space anywhere. By providing a rent-free period, you're immediately grabbing the attention of those who are already ready to sign a lease agreement. While this rent-free period will not instantly fill your accounts receivable, it will pay off in the long run.
For example, let's say you offer a two-month rent-free period on a two-month lease, and you're requesting $10,000 a month for the office space. Essentially, you're offering $20,000 off their $240,000 two-year lease. They'll only pay $220,000 over the two years, which is only a 9% loss for you.
That 9% is a small price to pay compared to the stability you'll likely enjoy as $10,000 comes in every month from one tenant. The continuous cash flow is well worth the small incentive at the beginning of the lease agreement.
#2 – Provide Rent Abatement
If you are not in a position to offer a rent-free period, consider rent abatement instead. Rather than not receiving payments for a set period, a discount is applied across the entirety of the lease. This allows you to continue receiving payments and provides your new tenants with an offer they will be hard-pressed to refuse.
Let's look at another example using the same $ 10,000-a-month office space mentioned above. Each year, the lease is $120,000. If you offer a 10% abatement across a two-year lease, the total cost of their lease is only $216,000 versus $240,000. This provides the tenant with a cost savings of $24,000 over these two years.
Compared to the rent-free period, this is $4,000 more of a loss, but you are guaranteed a $9,000 payment the very first month of the lease. This means you have the reliability and security of receiving the lease payment over two years.
#3 – Consider Fit-Out Contribution
Another way to attract tenants to your new office space is to complete a fit-out contribution. This is negotiated into the lease. However, this method is not as popular for tenants because it does not provide them with direct monetary savings.
With fit-out contribution, you supply the entire commercial office space with fixtures, furniture, appliances, and other negotiated items. This saves the tenant from having to purchase or move furniture into the space. However, it does not save them money on their rent each month.
With fit-out contribution, you can still see positive ROI in the long run. And, if these tenants decide to move after the two-year lease, you can still retain all of the furnishings in the office space, allowing you to use that as a benefit when you're marketing the property to new commercial tenants.
#4 – Make Building Upgrades
If you want to attract tenants, consider making upgrades to your building. For many tenants and their employees, social distancing could still be a bigger concern. You may be able to attract tenants by making protective upgrades such as dividers or partitions.
Features like touchless plumbing, voice-activated elevators, automatic hand sanitizer dispensers, and electronic soap dispensers reduce physical touching and thus helps prevent any viruses and bacteria from spreading around the building.
Ultimately, this showcases that you care about the health and safety of everyone who enters. This is incredibly important when large companies make decisions about whom to bring back into the office.
#5 – Improve Your HVAC System
When it comes to finding commercial real estate for sale, the efficiency of the HVAC system is a prime selling point.
If your HVAC system hasn't been upgraded in the last five years, consider making the investment. Not only will you make your current tenants happy, but you'll likely pick up on visual and audio cues of tenant satisfaction as they enter the building.
In addition to improving the temperature in the building, the HVAC system can also be upgraded to include HEPA filters. These can provide better air quality and help to keep viruses and bacteria from spreading throughout your cooling system.
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