Office space vacancies are at their highest point in Canada, in many years. Tenants have had to make decisions regarding what to do with their office space during and following the pandemic.
Sublet numbers were at a record high but the market has decreased slightly since 2022 since corporate tenants have made their decisions regarding if and how many employees will be returning to the office. The tenant is in a better position to project the amount of space they require. With increasing economic stability, the tenant is more comfortable projecting realistic profit margins, which affect their rental space and staffing needs.
With Covid in the rear-view mirror tenants now have the option of subleasing or re-negotiating their leases and or downsizing space. Canadian office tenants now have the upper when it comes to negotiating with landlords in the first part of 2024, after a year where vacant rates stabilized at elevated levels.
With sublets, new lease negotiations and renewals the landlord will need to perform due diligence with investigative reporting on the new prospective and the original tenant, for a fresh look at how they qualify, which could be based on their overall rebound from the pandemic era.
By using comprehensive credit reporting, the landlord can be sure you are selecting the right tenants, protecting the investment, maximizing return on property and reducing risk.
One of the best ways to do this is to review your new tenants, renewal tenants and sublease tenants thoroughly, to help you identify:
- The legitimacy of the current tenant, assignee, or sub-tenant - is it active and in good standing with Company's Branch and Corporate Tax Branch?
- Whether the current tenant, assignee or sub-tenant has the financial stability to maintain the lease
- Current banking relationships and deposits
- Current borrowing facilities and balances
- Legal actions, collection claims, delinquent payments, and tax liens
- Whether they will suit the reputation of your building
- If you need to request personal guarantees, letters of credit and security deposits
In any of these situations, choosing the right tenant will:
- Protect your investment
- Increase cash flow
- Improve property value
- Minimize risk of income loss due to frequent turnover
- Decrease the risk of damage, fraud, or theft
- Drive down number of rent concessions
- Minimize lease modifications/terminations
- Reduce further subleases and assignments
- Decline the number of defaults, and evictions
- Reduce exposure to legal claims by or against delinquent tenants
Ultimately, effective tenant screening ensures that your investment is as lucrative as possible and that your financial non-monetary resources are being used effectively. Instead of using your resources to settle disputes or prepare your property for new tenants, you can reinvest in your company and continue to grow.
Tags: Property Management
