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**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 moves out or chooses not to renew their lease, it creates both challenges and potential opportunities for asset managers. However, the true impact of tenant turnover is often underestimated.
A recent report by JLL, titled *The Price of Losing Tenants*, urges landlords and property owners to look beyond just vacancy and refurbishment when evaluating the real costs associated with a tenant’s departure. The report identifies several “hidden” expenses that can significantly affect the bottom line.
### A True View of Turnover Costs
Here are some of the often-overlooked costs property owners may face when a tenant leaves:
**Operating Expenses**
Even when a space is unoccupied, buildings still incur operational costs. Whether it’s utilities, maintenance, or security, these expenses continue—without any rental income to cover them.
**Marketing Fees**
Finding new occupants takes time and money. Listing the space, hiring a broker, producing marketing materials, and advertising all add up. Commissions also need to be paid to brokers who help secure a replacement tenant.
**New Lease Costs**
Negotiating and drafting a new lease is another line item. No two tenants are the same, and lease agreements must be tailored accordingly. New tenants may also request tenant improvement (TI) allowances or other incentives, adding to the costs.
**Reputational Risks**
If turnover becomes a common occurrence, it could harm the property’s image in the market. Multiple vacancies can suggest issues with management or ownership, discouraging other tenants from considering the space.
### Keeping the Tenants in Place
Tenant departures aren’t always preventable. They may result from business closures, space constraints, or relocation needs. Still, property owners and managers can take steps to encourage renewals and minimize turnover.
The report advocates a proactive approach to managing lease expirations. Regular monitoring and outreach can help identify tenant needs before lease terms lapse, potentially making renewal a more attractive option.
Ongoing communication is also vital. Building a strong landlord-tenant relationship can reveal valuable insights and allow for interventions that support tenant retention. As the report notes, open dialogue can serve as an early indicator of a tenant’s intentions and satisfaction with the property.
In short, while turnover is sometimes unavoidable, understanding its full cost and taking a proactive stance can help property owners protect their revenues and maintain asset stability.
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