There are many avenues to generate revenue in an airport, including by providing rental services. However, it’s easy for restaurant and shop owners to get neglected in contracts which can make the tenant management process a nightmare.
This article discusses some details to include in the lease to make managing tenants in an airport easier and a solution to better manage these contracts.
1) Lease Term
This is the first leasing factor affecting your relationship with the restaurants and shops on the airport grounds. This refers to the period during which the business will be renting the space to do its operations.
It’s crucial for business owners to understand whether they sign up for a short-term or long-term lease. This is because the tenants will have to consider the amount of rent they are paying concerning the costs they’ll incur while making the place suitable for business.
For example, a restaurant owner will probably renovate a space to make it more appealing for their target market. However, if they take a short-term lease, they might not make enough profits to cover the renovation costs and remain with enough revenue, which will translate to losses.
As such, the tenants should choose a lease term that allows them to see a return on their investment.
2) Annual Rate Increase
A common element of lease agreements is an annual rate increase which is a standard by which the rent will increase each year. This can be placed in the form of a percentage or a specific monetary value. It’s easier for tenants when the annual rate increase is stated in monetary form because it’s hard for most tenants to understand its implications when it’s stated as a percentage.
If you state it as a percentage, the tenants might think it’s not that high, but management issues will probably arise once the interest starts compounding. When you place the rate in monetary values, they’ll understand what to expect in the years to come.
3) Renovation Subsidy
The retail shop or restaurant owner might want to renovate the space before starting to sell. Since this is a reasonable decision, you should make it easier for the tenants to handle renovations smoothly. You can do so by placing a renovation subsidy or fit-outs that compensate the store owner for their renovation costs.
Keep in mind the store won’t be at the airport forever, and sooner or later, the business might relocate to another location. So, the renovation will benefit the airport management as much as the store owner, which is why you should meet them halfway. This could be by providing rent-free months or by contributing up to 10% of the renovation costs.
4) Average Foot Traffic Stats
Another crucial detail that can make handling your tenants easier is providing the average foot traffic statistics in the lease. Airports are among the few environments that can maintain high foot traffic throughout the year. This makes them suitable locations for stores, restaurants, and various businesses.
With a high foot traffic average at hand, you can comfortably set high rent rates since higher sales for your tenants are almost guaranteed. This also translates to higher revenue for the entire airport, which can help maintain smooth operations.
5) Similar Competitors
One of the challenges tenants face when renting commercial spaces at airports is competition. You don’t want to host several businesses that offer the same products or services in an airport since this can affect the profits each enterprise makes. It’s better to establish a monopoly in the area to ensure that each business sees maximum profits in its operations.
This factor can help you set higher rates when negotiating terms with your potential tenants since you can assure their business will thrive.
6) Free Rent Months
Having a vacant space can mean losses for a busy environment like an airport. With the high level of foot traffic, it’s crucial to ensure that every room for revenue is exploited. One of the things you can do to make this happen is to provide rent-free months for new tenants.
This can allow them to find their footing before they start running their businesses. You should consider the revenue they’ll generate after stabilizing their operations against the risk of looking for another tenant.
Having this information in the lease agreement will make it easier for the tenants to make their decision, stabilizing, and it can save you lots of money in the long run.
7) Price Per Square Foot
Rent in commercial leases is calculated per square foot. This isn’t an easy metric for most people to understand, which is why you should state it in the contract as clearly as possible. The clarity you provide will help tenants make their decision against their budget.
However, this shouldn’t be stated in isolation since there are other factors that can affect business performance aside from rental expenses. These factors are visibility, accessibility, and collaboration, which you can use to make your deal more appealing.
8) Special Levy
There could be special levies that you impose on businesses during specific times like the holiday season. You want these levies to be displayed clearly in the contract because you don’t want the tenants refusing to pay them. These levies can be imposed on the marketing gimmicks, promotions, or discounts the businesses provide at certain times.
While they provide a way to increase revenue, you don’t want these levies to look like hidden costs since this can make it hard to work with the business owners once they realize it.
9) Early Termination Rights
Lastly, you should provide your tenants with rights for early termination of the contract. This is because you don’t want the tenants to continue in the airport if they don’t find their business profitable. To avoid complications, you can determine a particular period during which the business should meet a specific threshold in revenue to determine whether it can grow or not.
If the business is incurring losses, you’ll have provided a way out for the tenants, which will be helpful to them. Nevertheless, if they exceed the set limit, then the contract will have to continue as planned.
Avoid Manual Contract Management With MIBAR
Ensuring that the needs of airport tenants are addressed is the first step to ensuring smooth management of your space. Unfortunately, managing these contracts can be challenging. For most airport flight operations, ramp services, and concessions, all billing and expensing are contract-based, with most of those contracts originating on paper and then recorded to static Excel spreadsheets that employees refer to when generating invoices. While logical in theory, these siloed, paper-based processes can quickly turn nightmarish for the companies managing them.
Focused on creating a unified experience that ties together financial reporting, budgeting, operational execution, contracts, contract management, and both customer and vendor portals, MIBAR’s Terminal Management for NetSuite eliminates the friction caused by paperwork, silos, and spreadsheets. Click here to learn more or contact us today!
CASE STUDY: Learn how MIBAR developed a contract management interface that allowed an easy way to key in contracts in legal form, track billing, and escalate rates over the life of the contract for JFK International Airport. View the case study.