2020 resulted in record-high vacancies for certain commercial real estate sectors. Office, retail, hotel and lodging, student housing, and high-density urban multifamily properties are suffering from reduced occupancy and demand. Some sectors don't necessarily have control over certain impacting factors, like legislative policies that dictate whether or not they can open and at what operational capacities, but others can take a more proactive approach to combat the current market conditions. Here are five ways commercial landlords can turn the tables and improve their vacancy rates in 2021.
Update or change features
Operating a commercial rental property in 2021 and beyond will look very different than it has in the past. New design elements to help maintain a healthy working and living condition will be the new norm. High-quality ventilation systems, more spacious communal areas, and individual workspaces are changes tenants are looking for as they return to the marketplace post-COVID-19.
Making simple updates, particularly to older properties, like installing new flooring or lighting, painting the interior or exterior of the building, or adding landscaping can be great ways to attract new tenants. While spending more to get a tenant may seem counterintuitive, a little bit up front can pay big dividends in the long run and reduces losses incurred from a vacancy. Plus, many improvements can be coded as a capital expense and depreciated with the property over time.
Make it smarter and more sustainable
Sustainability isn't just a trend, it's the wave of the future. Large real estate investment trusts (REITs) put forth significant efforts for sustainability within their properties to reduce expenses, attract and retain tenants, and compete in the marketplace. Adding smart features that incorporate technology to improve functionality and access to the property will make a big difference. A quick and easy switch to LED lighting or installing automatic timers for lights can bring down the electricity bill for the tenant.
No one wants to lower rents, but in a down market sometimes one of the only ways to attract tenants is to make it more affordable and competitive in the marketplace. Reducing rents, or offering other competitive terms to the lease, such as a shorter lease term, no fee for breaking the lease, or "free rent" can get people in the door, and from there, great management will hopefully keep them there. Keep in mind, incentives and competitive lease terms will only go so far. If your property or space is old, not functional, or in need of updates or repairs to remain competitive, the tenant will likely turn elsewhere regardless of the discount or offer.
Most landlords have a preferred method of marketing. Whether that be a specific listing website, working with a broker, or a combination of both, it's a good idea to get creative. Seek out new marketing sources, which could include listing the rental property on social media, hiring an ongoing marketing team to help build presence and brand awareness in the long term, or adding signage in new areas advertising incentives or attractive features.
No one wants their property to sit vacant. Vacancies reduce profitability and place pressure on the landlord to maintain the property until occupied. Using the four strategies above, hopefully you'll be able to reduce your vacancy rate and get the property leased.