What is re-leasing in commercial real estate?
Re-leasing is leasing a space again after the previous tenant leaves or its lease ends, usually to a new tenant, although some reports count renewals of the existing tenant too. Its cost is the downtime before the new lease starts paying, plus incentives, fit-out or make-good work, letting fees and the outgoings on empty space. Scayled works on the downtime: for a unit that is vacant or coming back, it finds 250 to 350 businesses the building suits, names the person who signs at each and drafts an approach per business, for a fixed US$749 per vacancy.
- What does re-leasing mean?
- What does re-leasing cost a landlord?
- What is a re-leasing spread?
- How is re-leasing modelled?
- How do you shorten the re-leasing period?
- How does Scayled help with re-leasing?
What does re-leasing mean?
Re-leasing, called re-letting in the UK, is the process of finding and signing the next tenant for space that a tenant has left or is about to leave. It runs from the moment the landlord knows the space is coming back until a new lease starts.
It is a different event from a renewal. A renewal keeps the existing tenant and usually costs less: little or no downtime, a smaller incentive and lower fees. Re-leasing to a new tenant brings all of those costs, which is why models treat the two outcomes separately.
What does re-leasing cost a landlord?
The largest cost is usually downtime: the months with no rent, during which the landlord also pays outgoings that a tenant would normally cover, such as property taxes or business rates, insurance, service charges, utilities and security.
Then come the costs of securing the new tenant: rent-free periods or free rent, tenant improvement allowances or landlord works, agent letting fees, legal costs, and any refurbishment needed to make the building competitive. Recovering dilapidations or make-good from the outgoing tenant can offset part of the works.
What is a re-leasing spread?
The re-leasing spread is the change between the old rent and the new rent on space that has been re-leased. It is positive when market rents have risen since the old lease was signed and negative when they have fallen.
Listed industrial REITs report this figure, under names such as rent change or rental spread on new and renewal leases, because it shows how much of the gap to market rent they are capturing. A strong spread can be wiped out by a long void, so spread and downtime need to be read together.
How is re-leasing modelled?
In ARGUS Enterprise, from Altus Group, each lease rolls into market leasing assumptions at expiry: a renewal probability, the months vacant if the tenant leaves, the new rent, free rent, tenant improvements and leasing commissions. The model blends the renewal and new-tenant outcomes using the renewal probability.
The months-vacant input is the most sensitive and the least observed. It is usually a house assumption for the asset type and market, while the real figure depends on how early the re-leasing effort starts and how many suitable businesses hear about the space.
How do you shorten the re-leasing period?
Start before the handback. Agree the condition of the building and any dilapidations early, decide whether to refurbish, and begin conversations with possible occupiers while the outgoing tenant is still paying rent.
Use more than one channel. An appointed agent and the listing portals reach businesses searching now. A direct approach to the businesses the building suits reaches the ones not yet searching, such as a company whose site is getting tight or whose lease elsewhere is ending.
How does Scayled help with re-leasing?
Downtime in a re-let is mostly time spent waiting for the right business to notice the space. Scayled goes the other way: given the unit's size, use and target occupier, it finds 250 to 350 businesses that fit, checks the operations or property lead at each before delivery, and writes every one a personal email about this building.
On a re-letting, the fixed cost is easy to set against even one month of downtime: The Campaign is US$749 for the Full list or from US$449 for a Focused one, paid once per vacancy with no commission on the new lease. The emails land in the fund's own drafts, ready to send from its inbox, or Scayled sends them for US$299 more from one mailbox the fund adds on its company email. What goes into one is set out in leasing campaigns for commercial property.
Lease The Vacancy In-House, Before You Appoint An Agent.
The Campaign finds the 250 to 350 businesses the building suits, names the person who decides at each and writes every email, ready in about five days. One payment of US$749 per property, no commission and no subscription. A focused 100 to 150 from US$449.