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IA Market Review Preferences & Tips


IA allows you to set a tenancy profile by lease type (net, gross, gross base), and apply rent free periods, cash incentives and probability options to renew.

In addition, you can nominate a market rent for when the lease is terminated if the sale date runs past the initial lease term.

When setting the market rents, you will need to nominate if these rents are calculated as Gross, Net or as Lease Type in the IA Preferences.

IA Market Review Preferences & Tips

Typically, Market Rents are quoted as a net effective rent for ease of comparison. But Options for a cash payment for office fit-out, or a rent free period, should be inclusive of the incentive quoted and negotiated on a lease by lease basis. And these incentives are typically quoted on gross incentive basis.

For example; a small office space of 100sqm might be offered for lease with a face rent of $650 psqm and a 10% gross incentive for a 5 year term with 5 year option to renew.  The gross incentive refers to the initial lease term (not the option period) and includes the outgoings. So if you have outgoings of $150/sqm then the net effective rent is as calculated as follows:

(650+150)*(100%-10%)-150 = 720-150 = $570 Net Effective.

In scenarios like this; for ease of comparison, it is suggested that you set Rent Review in Preferences to a Net Rent and quote the market rent as the Net Effective Rent (that is $570 for the above example) and set incentives 0%.

The Leasing up period refers to the time it takes to relet the tenancy if vacant. If you also have a rent free period, you can include this in the Leasing Up period quoted in months. So if you think it will take 12 months to find a tenant, and you will offer a 6 month rent free period; then set Leasing up period to (12+6) =18.

If, in addition to the net effective rent, you offer a cash payment upfront in the new lease; you can use the Incentive %. The Incentive % in IA is based on the annual gross income. Hence in the example above (area 100sqm net rent $570 and outgoing $150), a 10% incentive would yield a lump sum payment at the start of the lease as follows:

100* (570+15) x 10% = $7,200.

If you want the incentive to reflect the whole term, then you should enter 5x 10% = 50% and the cash lump sum paid would be $36,000.  Therefore, the incentive is a cash incentive based on the annual gross rent and not the term

Date Published: 11 Jun 2014
Category: Hints and TipsNews

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