Media release - 22^nd October, 2012

Cool heads prevail when lessees are in short supply

Lessors are advised to review their existing lease agreements well in advance, at least six to nine months before expiry, and longer for larger tenants
Lessors are encouraged to weigh up other factors at rent review time, including the real costs of losing a sitting tenant, as a softening economy leads to decreased demand from lessees
Short supply of commercial tenants is providing considerable upward pressure on the quantum of lease incentives

Constrained consumer confidence, coupled with the softer economy, has slowed the recent fightback of some of Australia’s commercial property markets.

According to the latest ANZ Australian Property Outlook, rents in Sydney, Melbourne, Adelaide and Canberra have stalled.

Yet it’s not all doom and gloom, with the ANZ asserting that market fundamentals still suggest the broader commercial property market, particularly the office and industrial sectors, are in the early stages of a multi-year cyclical upswing on the back of falling vacancies and restricted supply.

In the interim, Angus Raine, CEO, Raine & Horne Commercial, is urging lessors to ride out the difficult financial environment by taking a commercial and pragmatic view of the market.

“When lessees are in short supply, a lessor’s best form of attack is cautious restraint when it comes to rental reviews,” says Mr Raine.

“If a lessor takes a bullish position to seek higher rents, it could force an existing lessee to pull up stumps and move on.

“Before taking this course of action, be sure to evaluate your current lessee’s history and strength of covenant because the next lessee’s ability to pay might not be as robust,” advises Mr Raine.

Mr Raine says lessors should look at the big picture when negotiating with lessees.

“In this case, the old saying about a ‘bird in the hand’ is very true – if lessors are too aggressive with terms and lose their sitting lessee, the real cost could be a long vacancy coupled with the cost of refurbishment, re-marketing the property, agency fees and other tenancy inducements.”

“As such, a cool head when renegotiating with a sitting lessee can save you from future headaches and income woes, and this is something your local Raine & Horne Commercial agent can certainly assist with,” says Mr Raine.

Jay Sheffield, Principal of Raine & Horne Commercial North Sydney, agrees with this advice given there’s a lot of caution in the commercial office market.

“We currently have a good long term lessee, who believes they need to expand within two years, and we are already looking at creative ways to encourage them to stay put for longer.

“Therefore rather than lifting the face rent to market, we’re offering to keep it at the current passing rent and asking them to consider a longer term lease – it’s prudent asset management and a win/win situation for both parties.”

-ENDS-

For further media information contact:

Angus Raine, CEO, Raine & Horne Commercial on 0409 920 697

Andrew Harrington, National Marketing & Communications Co-ordinator on 02 9258 5400

Restraint the best form of attack when it comes to commercial rent reviews