Vacant space is a real thorn in the side of commercial property owners. It’s a huge drag on the top and bottom line, both on paper and in real dollar terms. But when restructuring an investment property portfolio, it’s frequently overlooked as amendable part of your business plan.
Obviously there is a loss of income while a commercial space is unoccupied. There will be some costs to keep the utilities connected, taxes that will need to be paid, and interest costs that accrues if the property is mortgaged.
While an occasional vacancy is expected and an unavoidable cost of doing business, long-term vacancies or excessive vacancies can make a property less attractive to prospective tenants.
Potential tenants could be concerned about whether or not the property was maintained properly with the reduced cash flow available while it was vacant, or they may just prefer a location that’s full.
This would be especially true with retail properties, but, empty spaces may be a concern in any type of property as tenants feel more secure when a building is full.
It requires some creativity and willingness to think outside the box to make your vacant space appear attractive. Here’s some tips we’ve used and know will work that can get you started.
Shared office spaces are becoming popular. Many work-at-home professionals like access to a conference room and enjoy the chance to interact with other professionals. While you may not want to handle the overhead associated with this, it could be relatively easy to find an administrative assistant or second, part-time property manager to take the project of finding temporary or on-demand tenants on.
For some properties, this option could be the highest and best use of the area since there is often a large group of individuals who need this type of service. Retail space could also be subdivided fairly easily and be made attractive to smaller tenants.
Charities may be able to use space for a short-term project. They could operate a fund raising campaign from your property, or house temporary staff there. An advantage of this option is that it could allow you to take a tax deduction for supporting a charity, offsetting the lack of cash flow.
Local art societies could use the space for a showing. There is the possibility of a tax deduction for this option and there is also the possibility of free advertising associated with an endeavor like this.
Artists will advertise the upcoming show and the show itself will bring many people to your property. You get a chance to support your local community and allow prospective tenants to view your property without incurring significant out-of-pocket expenses.
You should always evaluate the options that are available for that space. Larger spaces could be subdivided. Making office space smaller may require expensive renovations and should be considered only after exploring lower cost alternatives.
Short-term vacancies are a normal operating expense for commercial properties. They can also become a marketing opportunity, a tax deduction, and a chance to become better known in your local community. But with some experimentation, this normal expense can become an asset during times of high vacancies.