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Reviewing Your Investment

Part of the general maintenance of a Commercial or Industrial property investment is to ensure that the rental keeps pace with the market place.  One of the most critical aspects of maintaining a commercial / industrial property investment is to maximise the return by way of good market rentals, strong tenancy structures and robust occupancy rates.

 

Rental agreements are reviewed periodically as part of a normally structured commercial lease.  There are a number of ways for rent to be varied during and at the end of the lease term.  Firstly a rental can be increased by a fixed rental percentage increase which is pre-agreed at the onset of the lease.  This style of rental variation is highly structured and whilst it gives the landlord and the tenant surety in relation to what rental income will be demanded and produced from the property, it does not provide for any flexibility during the lease term.  Rentals are pre-determined and fixed for each year of the lease and there is usually a rental review to market valuation at the expiration of each rental term.  As stated earlier this style of agreement certainly provides surety but does not provide for any upside or downturn within the property market itself except at the expiration of each rental term.

The 2nd style of rent review is to increase the rent in accordance with the Consumer Price Index (CPI).  These rental increases are commonly used in the commercial property industry & its common when rent is reviewed to CPI on an annual basis there will be a rent review to market again at the end of each rental term throughout the lease.  This review to allows for any great variation in the marketplace to be accommodated for at the time of the rent review.  This means that rent can go up or down depending on market pressure.

 

The 3rd style of rent review is reviewed purely by agreement & failing agreement, to market valuation. 

One of the important principles of commercial property investment is to ensure sustainability of the investment and this is often linked to the viability of the Tenant & the Tenant’s business.  Continually increasing rentals that ultimately result in an outcome which is beyond the Tenant may ultimately result in damaging the commercial property investment itself.  Sometimes, Landlords will need to be a little concessional in relation to rentals to keep their properties occupied, particularly in tougher markets as we are currently experiencing at present.