De-Risking Your Industrial Investment Through Smarter Lease Strategy

De-Risking Your Industrial Investment Through Smarter Lease Strategy

For industrial property investors, the biggest threat to returns today isn’t necessarily falling rents or rising costs. It’s vacancy. Over the past 18 months, properties have been sitting vacant for longer while enquiry levels have dropped. The financial burden of holding an empty asset has grown significantly as a result. Landlords are finding that leaving leasing to the last minute now carries real cost.

The properties leasing quickly tend to share common characteristics: they were marketed early, priced to reflect current conditions and presented well to prospective tenants. Getting those fundamentals right is achievable, and the starting point is understanding what's actually driving outcomes in the current market.

 

 

Outgoings are growing

While lost rental income is the most visible consequence of vacancy, the full picture also includes outgoings, holding costs and the opportunity cost of capital sitting idle. In the current environment, these costs compound quickly.

Outgoings over 30% are reshaping investment returns

Property outgoings have risen sharply. Where outgoings once sat at around 10% of rent a decade ago, they now commonly represent 30-40%. Rates, insurance, land tax and compliance costs have all increased, and during vacancy, the landlord carries the full burden. Even a two-month vacancy can result in significant financial impact when outgoings are factored in alongside lost rent.

 

The rising importance of incentives for tenants

This reality is forcing a recalibration. Property owners now understand that offering an incentive or accepting a slightly earlier lease commencement is preferable to prolonged vacancy. At minimum, a tenant in place covers operating expenses. An extended vacancy erodes capital and puts pressure on cash flow in ways that a modest rent concession does not.

 

Timing the market process correctly

One of the most common mistakes landlords make is starting the leasing process too late. In a slower market, waiting until the tenant has given notice or the lease is within weeks of expiry creates unnecessary pressure and limits options.

 

Benchmarks for time on market

The timeframe required to lease a property varies significantly based on size. Smaller properties typically require around four months of marketing. Mid-sized assets often take six months. Larger properties or those with specific tenant requirements may need up to nine months. Planning around these timeframes from the outset is what separates a smooth lease-up from an extended vacancy.

 

The key advantage of starting early

Starting early provides a critical advantage: choice. With sufficient lead time, landlords can be selective about tenant quality rather than rushing to fill the space with whoever shows interest first. The longer the timeframe, the broader the applicant pool and the better positioned the landlord is to negotiate terms that protect income and reduce future risk.

For landlords considering a sale or exit, the same principle applies. Initiating discussions at least nine months before a desired move-out date allows time to assess options, prepare the property and list it four to five months prior to vacancy. This approach maximises value and reduces the likelihood of distressed pricing.

 

Visibility as a leasing strategy

With more properties competing for tenants, marketing has become increasingly important. Properties that are well-advertised lease faster than those that are passively marketed or poorly positioned.

Too often, marketing is treated as something that begins once a vacancy is confirmed. In the current environment, that approach costs time. The conversation about how a property will be positioned, where it will be advertised and what the campaign will look like should begin well before the lease expires; ideally, at the same point the leasing timeline is being mapped out. Early planning means campaigns can launch the moment a vacancy becomes known to the market, rather than weeks after the window has opened.

Strong advertising from the outset ensures that properties are visible to the broadest possible audience and gives leasing campaigns the best chance of attracting interest early. Waiting too long to promote a vacancy or relying on limited exposure reduces enquiry and increases leasing timeframes.

 

Accepting market reality on rents

One of the more difficult conversations we're having with landlords involves rental expectations. Many property owners are anchoring to rates they achieved two or three years ago, or to rents they've heard about in stronger markets. The challenge is that those figures often no longer reflect what tenants can afford or what the market will support.

Rents have adjusted in parts of the market. In many cases, they've declined. This doesn't mean the property has lost value, but that affordability has shifted due to rising outgoings, tighter business conditions and changed tenant budgets.

We're also seeing cases where landlords need to reduce rent below what the current tenant is paying in order to secure a replacement. This is particularly true where the existing lease was signed during the post-COVID period when rents spiked.

Holding out for rents that no longer reflect market conditions can extend vacancy periods significantly. Accepting a slightly lower rent while securing a quality tenant often produces a better long-term outcome than waiting months for a higher figure that may never materialise.

 

Using incentives to your advantage

Leasing incentives are also becoming more common as landlords compete to attract tenants. Offering a short rent-free period or accommodating an earlier lease commencement can be an effective way to secure occupancy quickly. 

What is often misunderstood, however, is how these incentives affect the overall financial position. A rent-free incentive typically applies only to the base rent. Outgoings are still payable by the tenant. With outgoings rising significantly over the past decade, this distinction is important.

Where property outgoings once represented around ten per cent of rental income, it is now common to see them sitting between thirty and forty per cent. Offering rent-free while the tenant covers outgoings provides immediate financial relief for the landlord because the property is no longer sitting completely idle. Operational costs are being met, even if rental income is deferred.

 

The right incentive now saves you months of vacancy

The most effective incentives are built into the leasing strategy from the outset, not added in when interest fails to materialise. A well-timed incentive that secures a quality tenant quickly is preferable to avoiding incentives altogether and watching the property sit vacant for months. The cost of vacancy (lost rent plus unrecovered outgoings) almost always exceeds the cost of a reasonable incentive.

 

Tenant quality cannot be compromised

In a market where every week of vacancy carries a measurable financial cost, the temptation to accept any tenant just to fill the space is understandable. However, engaging an unsuitable tenant can create far greater problems than a few extra weeks of vacancy.

 

Be selective to protect your investment

Poor tenant selection increases the risk of arrears, property damage, compliance breaches and legal disputes. The cost of rectifying these issues, financially and operationally, far exceeds the short-term relief of having a tenant in place.

Proper due diligence is essential. This includes credit checks, reference verification, business history and clarity around the intended use of the property. Tenants who are evasive during the application process or unwilling to provide standard documentation should raise immediate concern.

 

Recognising early warning signs during tenancy

Once a tenant is in place, ongoing management remains critical. Securing a tenant is only part of the equation. Keeping that tenancy healthy, and identifying early when it may be at risk, is what protects landlords from finding themselves in a continuous cycle of sourcing new tenants.

Certain behaviours serve as signals that a tenancy may be at risk or that issues are developing beneath the surface.

Arrears, even if minor or explained as temporary, should be addressed immediately. What starts as a single missed payment can quickly escalate, particularly in a tougher economic environment. Early intervention protects income and maintains the landlord-tenant relationship.

Tenants who refuse inspections or attempt to delay or obstruct access are another cause for concern. Landlords have both a legal obligation and a financial interest in ensuring the property remains compliant. Obstruction of essential service maintenance, especially where fire safety or building compliance is involved, should be treated as a serious breach. These situations require immediate attention and, in some cases, formal notice.

 

Management is the key

Proactive management of an existing tenancy is, in many ways, an extension of the same discipline that drives good leasing outcomes. The landlords least affected by vacancy are those who protect the tenancies they have as carefully as they pursue the ones they need.

 

Final thoughts: proactive strategy reduces risk

Leasing under the current conditions requires early action. When vacancy carries this much financial weight, how early a landlord acts and who they choose to lease to become decisions that matter immensely.

At Rutherfords, we work with property owners to plan lease renewals and secure quality tenants. Our leasing and property management teams provide insight into current market conditions and the strategies that are delivering results. If you're approaching a lease expiry or managing a vacancy, our team is worth talking to. The earlier the conversation, the better the outcome.

 

 

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