When it comes to the performance of commercial and retail property today, there are factors of risk that need to be managed and controlled. Given that every property is different, the property manager or retail centre manager needs to be diligent in the process of risk assessment and management.
So what could be factors that fall into the risk management assessment process? Here are some of the main one's for you to consider:
- The expiry of any lease document and end of lease term is a threat to the income recovery for the property. Depending on the size and type of the property, income reduction can be a big issue for some landlords. On this basis it pays to monitor the lease expiry profiles within the commercial or retail investment property for the next two years. This allows you to see any threats to occupancy or income well in advance.
- Outgoings for the property form part of the property cash flow and net income. Each year the outgoings for the property should be reconciled so that you understand the status and comparisons of the property to others of a similar type in the same area. It could be that the outgoings are recovered in part or in total from the tenants in occupancy. The reconciliation will form part of this assessment and recovery process. Outgoings can be a factor of risk given that they can slip out of control or escalate beyond acceptable financial boundaries.
- Changes to property zoning and usage in the local area can be a factor of risk for serious consideration. If the local planning authorities change the zoning or transport infrastructure within the property precinct, your commercial or retail property can be significantly impacted. On this basis it pays to keep in touch with the planning authorities, and obtain copies of the current development plans as they apply to your area. Understand what each of the categories of your zoning provide and allow property owners and tenants to undertake on each property.
- The use of each tenancy can involve risk. The tenants may undertake some form of business that involves certain risk factors. For example they could be doctors, dentists, preparation of food, preparation or storage of chemicals, excessive threat of fire, noise, or dust. On that basis it is important that each lease document covers the risk factor comprehensively and effectively. It is then up to the landlord and or the property manager to ensure that the tenant complies with the rules and regulations of the lease.
- The function of each and every property will also involve risk from the aspect of property usage and the improvements installed. Through the attrition of time, improvements can degrade and even become dangerous. This will impact the landlords position of risk and on that basis needs to be managed. In older properties, it pays to get an engineering report and an architectural report on a regular basis to identify any risk factors that need to be rectified or improved.
- It is common today for insurance risk assessors to inspect commercial and retail properties on a regular basis. They do this as part of the annual insurance renewal. Be prepared for this process as the assessors will be diligent in their assessment and critical in the recommendations that they make. The essential services for the building will be assessed as part of that process to ensure the safe conditions of occupancy and building usage exist.
So these are some risk management processes to consider in your building management strategy. Depending on property type, there can be others that need to be included in the list. Be aware of the process and take control of your property to ensure that nothing slips through the cracks.