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Second-generation commercial leasing: The new frontier in commercial real estate profitability

Kinexio

22 May,2025

1 min read

Commercial real estate landlords are waking up to discover that the true value of their properties often lies not in the initial lease agreements, but in the subsequent ones. This concept, known as second-generation commercial leasing, is emerging as a pivotal strategy for maximising profitability and ensuring long-term tenant retention.

So as a commercial landlord, if you accept that your second-generation lease will be the ones that turns a profit, what strategies do you need to put in place now to ensure you’re in position of negotiating power in…12 or 24 months’ time?

One answer; a robust data and insights strategy.

The financial upside of second-generation commercial tenants

Second-generation spaces, properties previously occupied and now available for new tenants, offer significant cost advantages. These spaces often come equipped with existing infrastructure, such as HVAC systems, plumbing, and electrical setups, reducing the need for extensive build-outs. This not only lowers the entry cost for new tenants but also accelerates their move-in timelines, sometimes by 12 to 24 months, depending on the space’s condition.

For landlords, retaining tenants beyond their initial lease term translates to reduced vacancy rates and consistent cash flow. Long-term tenants contribute to the property’s stability and can enhance its reputation, attracting other quality tenants in the process.

Building tenant communities, not just commercial spaces

Modern tenants seek more than just a physical space; they desire a community that fosters collaboration and well-being. Landlords are responding by transforming their properties into vibrant hubs, offering amenities like wellness centres, communal areas, and flexible workspaces. Such enhancements not only meet tenant expectations but also differentiate properties in a competitive market.

Furthermore, the integration of smart building technologies allows landlords to monitor and optimise building performance, ensuring a comfortable and efficient environment for tenants.

Data that provide insights for commercial leasing

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Proactive tenant engagement: The key to retention

Tenants often begin evaluating their leasing options 12 to 24 months before their current lease expires. Recognising this, proactive landlords engage with tenants well in advance, addressing concerns and exploring opportunities for renewal. Regular communication, personalised services, and responsiveness to tenant needs are crucial components of a successful retention strategy.

Implementing flexible lease terms, offering competitive pricing, and providing incentives for early renewals can further solidify tenant relationships.

Leveraging technology for data-led leasing management

In a market where second-generation tenants are the real revenue drivers, retaining them hinges on a landlord’s ability to act on early warning signals. This is where property data becomes indispensable.

Smart building systems and integrated management platforms are increasingly being deployed to collect and analyse data on occupancy rates, energy usage, maintenance requests, and amenity utilisation. These metrics paint a nuanced picture of tenant behaviour, which can be used to assess the health of a tenancy and predict potential churn.

Occupancy rates: A gradual decline in office attendance or store footfall might indicate disengagement, downsizing, or a shift in operational priorities. If a tenant starts using less space consistently over time, it could be a red flag that they are reevaluating their need for the premises.
Energy usage: A dip in utility consumption, when not seasonally or operationally explained, can correlate with reduced tenant activity. For example, a tenant that previously ran full-day operations may now only partially occupy the space, signalling a soft exit.
Maintenance and service requests: A sudden uptick in unresolved maintenance complaints or a drop in reported issues could both be problematic. Disengaged tenants may stop reporting issues because they no longer see long-term value in the space, while persistent dissatisfaction can also trigger early exits.
Amenity usage: Tracking how often tenants or their employees use communal facilities like gyms, lounges, and conference rooms can also reveal levels of engagement. Decreased use of these value-added spaces may suggest tenants are either cutting costs or preparing to leave.

Insights from leasing experts

According to JLL’s 2024 Global Occupancy Benchmarking Report, organisations globally are increasingly focused on using workplace data to inform long-term decisions, with 60% of occupiers stating that space utilisation analytics will be a top priority in the next two years.

This data isn’t just helpful for diagnostics—it’s predictive. Machine learning models can be trained to recognise patterns that typically precede a lease termination. A landlord alerted six months in advance of a possible churn event has the chance to re-engage, renegotiate, or adjust amenities and services to retain the tenant.

As Manil Wagle, Director of Data, Analytics & Research at Oxford Properties, recently noted:

“We’re moving into an era where proactive data interpretation—rather than reactive management—is what’s going to separate high-performing landlords from everyone else.”

By leveraging technology and turning passive data into actionable insight, landlords gain the foresight needed to not only protect but extend the lifetime value of their tenants.

A shift in commercial real estate leasing: A focus on the future

The focus is shifting from merely filling spaces to cultivating lasting tenant relationships. Second-generation commercial leasing, coupled with community-building initiatives and technological advancements, positions landlords to maximize profitability and ensure long-term success. By prioritising tenant retention and proactively addressing their needs, landlords can transform their properties into thriving communities that stand the test of time.

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