Is Your Industrial Property Leaving Money on the Table?

Is Your Industrial Property Leaving Money on the Table?
 

Industrial property performance is often measured by what is easy to see. The rent coming in, whether the property is occupied and how its value has changed over time.

But some of the biggest opportunities, and costs, can sit beneath the surface.

A missed rent review. Outgoings that haven’t been correctly recovered. A lease condition that no longer reflects the market. An under-maintained property becoming less attractive to tenants. Or a tenant whose circumstances have changed without anyone identifying the risk early enough.

Individually, these issues can seem relatively minor. Across several years, or several properties, they can materially affect the return an investor receives from their portfolio.

Spring is a timely opportunity to take a closer look. Not simply at whether an industrial property is generating income, but whether it is performing as effectively as it could be.
 

Start With the Numbers You Should Already Be Receiving

One of the first places to look when reviewing an industrial investment is the financial administration sitting behind the lease.

Are all recoverable outgoings being charged correctly? Have annual increases been applied? Have CPI adjustments and market reviews occurred when required? Are there outstanding amounts that should have been recovered?

These sound like basic elements of property management, but they can be surprisingly easy to overlook – particularly within self-managed portfolios or where the same arrangements have remained in place for years without a comprehensive review.

Our Property Management team recently took over part of a self-managed portfolio where CPI increases had not been applied across four assets for approximately two to three years. The estimated difference amounted to around $110,000 in potential rental income.

That is why a portfolio review shouldn’t begin with the assumption that everything currently being done is correct simply because rent continues to arrive each month.

A comprehensive financial check can identify whether the terms already available to an investor under their leases are actually being implemented.
 

Review the Strength of Your Tenant Position

Income today doesn’t necessarily guarantee income tomorrow.

Another important part of reviewing an industrial asset is understanding the position of the tenant occupying it. Our Property Management team identified tenant certainty as one of the key questions investors should be asking as they plan for the next 12 months.

Is the tenant performing well? Are they likely to remain? Are there signs of financial pressure? Is the security held under the lease still appropriate? Are conversations about an upcoming expiry or option happening early enough?

This is particularly relevant in an uncertain economic environment. The importance of reviewing bonds and available security alongside tenant risk, particularly where businesses may be experiencing financial difficulty, cannot be overstated.

The objective isn’t simply to identify a problem tenant. It is to understand risk early enough that there are still options available.

Sometimes that may mean beginning renewal negotiations sooner. In other circumstances, it could mean strengthening security, preparing for a potential vacancy or working with an existing tenant to find a commercially sensible arrangement that keeps them in the property.
 

Don’t Lose Sight of the Cost of Replacing a Tenant

When investors focus heavily on maximising rent, it can be easy to lose sight of the cost of replacing a tenant. Vacancy, marketing, incentives, downtime and the uncertainty of finding another suitable occupier all have the potential to affect an asset’s return.

This is where proactive management becomes particularly valuable.

In one recent example, an existing tenant had indicated they intended to leave because the overall occupancy cost had become unaffordable. Rather than simply accepting the vacancy, the team spoke directly with the tenant to understand the underlying issue and identified outgoings as a significant pain point.

A revised arrangement was negotiated, including an adjustment to outgoings and annual reviews, which allowed the tenant to remain while preserving a commercially strong rental position for the landlord.

The lesson isn’t that landlords should automatically reduce costs whenever a tenant raises an objection. It is that understanding the commercial reality on both sides can reveal solutions that are considerably more valuable than allowing an avoidable vacancy to occur.
 

Look Beyond the Lease and at the Property Itself

Financial performance is only one part of an industrial property’s health. The physical condition and presentation of an asset can have a direct influence on tenant satisfaction, leasing demand and how the property competes with alternatives in the surrounding market.

Maintenance is particularly important. A leaking roof, unresolved building issue or capital repair that continues to be deferred doesn’t simply create inconvenience. It can affect a tenant’s operations, damage stock and ultimately weaken the landlord-tenant relationship.

There are also considerably simpler improvements worth considering. Painting, carpet, landscaping, general cleanliness and presentation as relatively straightforward ways an owner can improve the first impression of an industrial property. This becomes increasingly important when prospective tenants have more competing properties from which to choose.

The question for investors should therefore extend beyond “Is everything working?” It should also be: “If this property became available tomorrow, how would it compare with everything else a tenant could inspect?”
 

Benchmark Performance Against the Market

An asset can be generating income and still be underperforming.

That is why investors need context.

Rental rates, enquiry levels, vacancy, leasing periods and competing stock can all help establish whether a property is performing in line with comparable industrial assets.

Enquiry and inspection levels are useful indicators when assessing an available property’s performance. Their broader leasing and property management portfolio also gives the team visibility across rental rates and how long comparable properties are remaining on the market.

Price is only part of that assessment.

Location, access, surrounding infrastructure, presentation and competing new supply can all influence performance. A property close to major arterials and infrastructure with good site access may naturally perform differently from an asset constrained by narrow streets or a less desirable location.

Understanding those differences helps investors separate problems they can address from characteristics inherent to the asset, and make better decisions accordingly.
 

Make Sure the Lease Is Working for the Next Market, Not the Last One

A portfolio spring clean should also consider whether existing lease structures remain strategically appropriate.

Market conditions change. A lease negotiated several years ago may not provide the flexibility an investor wants today.

Rutherfords’ team has been using shorter option periods in the current market in some circumstances, allowing landlords to navigate softer conditions without necessarily locking themselves into them for an extended period. Where longer terms are appropriate, market reviews can potentially be incorporated during the term to create opportunities to reassess rent as conditions change.

There isn’t one lease structure that will be right for every industrial property.

The important point is that terms should be considered strategically rather than simply rolled forward because that is what has always been done.
 

Small Gaps Become Expensive When Nobody Is Looking for Them

For an industrial investor, improving portfolio performance doesn’t always require a major redevelopment, a new tenant or a sale.

Sometimes the opportunity is already sitting within the asset.

It could be income that hasn’t been recovered, a review that hasn’t occurred, a lease that could be structured more effectively, an upcoming tenant risk that can still be addressed or relatively simple improvements that make a property more competitive.

That is the value of periodically stepping back and reviewing the whole picture.

Are you receiving everything you’re entitled to under the lease? Is your tenant secure? Is the property being maintained appropriately? How does it compare with competing assets? And what decisions need to be made now to put it in a stronger position over the next 12 months?

Spring is an opportunity to spot those gaps before they become bigger ones.

If you’re unsure whether your industrial property or portfolio is performing as effectively as it could be, the Rutherfords team can review the asset, lease and current market position to identify areas that may warrant closer attention.

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