5 things retail investors should know when signing a lease

All property investors need strong tenants to help them make the most of their investment.

This is true regardless of whether they are commercial or residential investors; finding the right tenant is essential for all building owners.

When it comes to retail property investment, a successful business usually means a successful tenant.

Gorman Commercial Managing Director Stephen Gorman believes there are steps retail building owners can take to ensure they secure strong tenants.

He lists five things to consider when signing a lease:

1. The tenant has a business plan.
2. The ability of the tenant to pay the rent.
3.  If the tenant business fails, an appropriate bank guarantee is in place.
4. Fixed rental increases on an annual basis.
5. That the lease is not long-term to impact on the investment.

Australia’s retail industry has had a challenging few years thanks to slower consumer spending and the rise of online shopping.

But Gorman says the retail property sector has a history of stability and with rental growth.

He says 2013 was challenging, with significant vacancies creating instability and caution among investors.

“Investors are cautious because they need to borrow money and the banks are more conservative than ever, and therefore if the tenants are not strong, the stability is questionable,” Gorman says.

He believes it will be important for banks to embrace more lending and for uncertainty with respect to valuations to disappear: “If this happens we will see more confidence from investors and no doubt more turnover,” he says.

And he believes there is reason to be cautiously optimistic about the retail property market.

“I believe that while we will see turnover in 2014 we will not see any records, but we will see some more stability in the investment retail market.”