**The Hidden Costs of Tenant Departures**
“I don’t mind losing tenants,” said no commercial real estate (CRE) landlord or property owner ever. When a tenant fails to renew a lease or decides to vacate, it can trigger a cascade of challenges—or, in some cases, opportunities—for the asset. According to a new report from JLL titled “The Price of Losing Tenants,” the real costs of tenant turnover are often significantly underestimated.
**A Closer Look at Turnover Costs**
The report emphasizes that property owners and landlords need to think beyond just the obvious vacancy and refurbishment costs. There are several hidden expenses to account for when a tenant departs, including:
**Operating Expenses**
Even when a space is empty and undergoing refurbishment, operational expenses continue. Without an active tenant, these costs must be covered out of pocket—there’s no rental income to offset them.
**Marketing Fees**
Listing a property involves more than just putting up an online ad. Brokers need to be hired, marketing materials must be created, and photographs taken. On top of that, commissions need to be paid once a new tenant is secured.
**New Lease Costs**
Negotiating and drafting a new lease agreement comes with its own set of expenses. Because every tenant has different requirements, leases are rarely one-size-fits-all. Prospective tenants may also request incentives, such as additional tenant improvements, before agreeing to occupy the space.
**Reputational Risks**
High turnover in a building can signal troubles with ownership or property management. If multiple tenants vacate around the same time, it may make other potential tenants skeptical about leasing space in the building. Once again, empty space equals lost income.
**Strategies for Tenant Retention**
There are, of course, legitimate reasons a tenant may need to leave. Perhaps their space requirements have changed, they’re going out of business, or they need to relocate. Still, the report points out that landlords can take proactive measures to improve lease renewal rates.
Proactive communication is key. Tracking upcoming lease expirations and engaging with tenants early can make a significant difference. Understanding tenant needs and maintaining active dialogue across all levels of asset, property, and facility management not only fosters better relationships but can also provide advance warning of a potential move.
Ultimately, ongoing engagement and attentiveness to tenant feedback can reduce turnover rates and preserve the value of commercial real estate assets.
