You Can’t Control the Economy. You Can Make the Income More Resilient.

2 Sept

By Doug Parker, Montbart
First published 31st August 2026

The idea for this article was prompted by a recent newsletter from a financial-services asset manager looking at how portfolio managers are responding to this apparent period of economic and political uncertainty on both sides of the Atlantic.

One recurring theme was the strong instinct to preserve liquidity, reduce unnecessary risk and make existing portfolios more resilient. In my mind, commercial property owners face the same question and challenges.

I have no doubt some well-capitalised investors will see volatility as an opportunity and move quickly when assets become attractively priced, but for many owners the more immediate priority is likely to be simply protect the income that’s already in place.

Of course you won’t need me to explain that commercial property owners can’t control interest rates, local and national taxation, business confidence, energy costs, geopolitical instability or the wider economy. What they can do, is look at how exposed their own assets are to those pressures. This is where income resilience becomes the priority.

A resilient property investment is not just one with tenants in occupation. It’s one where the income can absorb change without the asset losing its footing. To be clear, it does not mean trying to remove all risk. Commercial property will always involve lease events, changing occupier needs, capital expenditure and regular periods of uncertainty. The harsh reality is that investment involves risk. Commercial property investment is no different.

The aim here though, is to make the income as robust, adaptable and commercially sustainable as possible. And (with my apologies for banging this drum again) in many cases, it comes down to our good friend - proactive asset management.

The rent is only as reliable as the business paying it

A tenant paying on time today doesn’t automatically mean the income is durable. So the next (and possibly more useful) question is what sits behind the rent?

How is the occupier’s business performing? Is the space still suitable? Is headcount increasing or reducing? Are their occupancy costs becoming harder to sustain? Does the location still work for them? And are they expanding, contracting or just starting to disengage?

Unfortunately many landlords only ask these questions when the rent stops being paid. By then, the problem might already be too advanced to fix. Good asset management means REALLY understanding the occupier before the lease event or the rent disaster arrives.

Of course, this certainly does not mean intrusive monitoring or interference, or pretending to run the tenant’s business for them. It just means maintaining enough engagement to understand whether the income is likely to stay sustainable. Problems don’t suddenly begin on the day the rent stops being paid.

Don’t wait for the break notice to start thinking about the tenant

I’ve written recently on the subject of lease events creating obvious points of risk. Lease breaks, expiries and renewals can all alter the income profile of an asset very quickly, but the date itself is only part of the story.

It’s very likely a tenant will have been thinking about the viability of relocation, business contraction or restructuring for months before a formal notice is served. Just like a landlord, who might have valuable options available long before the lease reaches its contractual event.

Early engagement can often create enough room to manoeuvre around some potential issues. This is likely to mean understanding your tenant’s intentions early enough to look at what might come up. It might involve a lease regear, a fresh reletting plan (if they are decided on leaving), or even helping them out to reduce occupancy costs. Generally speaking, the more time the property owner has, the more options can be available.

Don’t give value away. Trade it.

Landlords are understandably quite cautious about concessions, and a reduction in rent can affect comparables, valuation and future negotiations in an unhelpful way. However that said, it doesn’t necessarily mean the only commercially astute position is to resist it at all costs. Sometimes a temporary concession can improve the long-term quality of the income. The key approach is to treat it as a reciprocal exchange of value.

If a landlord gives something, what do they receive in return? A short rent-free period might be exchanged for a longer lease term or the removal of a tenant’s lease break. A tenant might be allowed to reduce their footprint into a smaller area (thus saving money on rent) while the landlord gains a separately lettable unit (assuming demand for space is still reasonably good).

The objective is not to be altruistic, but rather to agree a deal where both parties improve their respective positions. That is particularly important when a good tenant is under pressure but the underlying business is still viable. Losing a good and reliable occupier just to preserve a theoretical headline rent can prove much more expensive than agreeing a commercially sensible restructure.

Help the tenant in a way that also improves the asset

This is where proactive asset management can become particularly valuable.

A tenant occupying too much space may not need to leave the building entirely. If demand is strong and the space/building configuration allows it, the landlord may be able to consolidate that occupier into a smaller area. This can reduce occupancy costs for the tenant, and also allows the landlord to retain part of the income. The surplus accommodation becomes available to a new occupier, and the asset might end up with a more diversified rent roll.

This can also apply in connection with expansion too. A growing occupier may value access to adjacent space without having to completely relocate. A landlord who understands this early on, can potentially retain the tenant and strengthen the lease profile. The point is not to force every situation into a needlessly complex restructure. It’s more about looking at the nuances and seeing what can be done. ‘Stay or leave’ is sometimes not the only choice.

Multi-let buildings give landlords more levers

Multi-let assets can offer significantly more flexibility when income comes under pressure. It might be that accommodation can be subdivided allowing tenants to move or consolidate, with an added benefit of increasing the tenant mix. A single large unit can potentially be replaced with several smaller ones.

This offers an opportunity to think about income resilience at asset level, when we look at how dependent the building is to a majority occupier with a higher proportion of space. Is income exposed to a single sector? Are too many lease events concentrated into a short period? Could the next letting widen the tenant mix slightly? Maybe there’s an opportunity to slightly change the asset risk profile?

Single-let assets require a different kind of resilience

Unfortunately single-let buildings naturally offer fewer opportunities to balance a tenant mix and/or consolidate space. And also, the departure of the occupier might result in a complete loss of income. Of course, this makes the relationship with the tenant particularly important, just as it’s also important to understand the competitiveness of the building.

It’s certainly worth regularly checking in with the tenant to ensure it’s still suitable for them, and also to have an idea of whether they might find better-suited space at a similar cost. It might be that a programme of capital works would increase the attractiveness of the space (maybe consider a lease regear in exchange for the completion of the capital works if possible?)

How important is the location to the business? And (very importantly) if they leave, what happens next?

Single-let assets can undoubtedly produce highly durable income, but the owner needs a clear understanding of both the tenant’s position and the alternative use or reletting strategy.

Occupancy cost matters just as much as headline rent

Occupational affordability is of course, not determined by rent alone. Service charge, utilities, insurance, business rates and other occupation costs all affect whether a tenant can sustainably remain in a building. This means landlords need to pay attention to the full cost of occupation.

An inefficient building might create financial pressure even where the headline rent seems to be reasonable. And poorly controlled service charges can certainly undermine a landlord/tenant relationship and ultimately - retention.

Likewise unexpected utility increases can damage both the tenant’s economics and possibly the landlord’s net income. If leases are inclusive, there’s a good chance those costs will fall directly on the owner. So understanding these costs is a significant part of understanding income resilience, because a tenant who can afford the rent but not the building might not be a durable tenant.

Diversification can strengthen the income, but only if it makes commercial sense

I feel ‘diversification’ is often presented as an automatic virtue. I wouldn’t agree, as it’s not that simple. A building with ten ‘borderline’ occupiers is not necessarily safer than one with two strong ones; but that said- concentration still matters.

If a significant proportion of rental income depends on one business, one sector or one lease event, the owner might need to understand that exposure properly. And this principle applies across a portfolio too. A landlord might discover that several apparently unrelated assets are ultimately dependent on similar economic influences.

Diversification should therefore be intelligent rather than superficial. It’s not enough for the owner/landlord to simply know how many tenants they have; they also need to know how much of their income depends on the same thing going right.

Know the alternative before you really need it

One of the most useful questions in asset management is actually painfully simple: What happens if this tenant leaves?

This leads us into the subsequent questions:

1. Who is the likely replacement?

2. What level of rent could be achieved?

3. What lease incentives would be appropriate and realistic?

4. Does any work need to be carried out?

5. How long is the void period likely to be?

6. Could the space be divided?

7. Is there a potential alternative use?

The worst time to ask these questions is when the keys have been handed back.

To be clear, a realistic fallback plan doesn’t make the tenant more or less likely to leave, but it can make the owner less vulnerable if they do. And that in itself improves resilience.

Protect the investment, not just the lease

I believe commercial property can sometimes become overly focused on the contractual position. Clearly the lease matters enormously, however – it’s only one part of the investment.

A landlord can be technically correct, but still make a poor commercial decision. Holding a good tenant rigidly to a contractual position that ultimately causes them to leave might not protect asset value. This can be a complex area, but sometimes agreeing some ‘sensible’ degree of flexibility without setting a precedent might strengthen the income if the result is a longer commitment, a better use of space or a more sustainable occupancy cost.

In my mind, the question should always come back to the asset itself.

“Does this (action) protect the quality of the income, and does it create a stronger investment position?”

Resilience comes from options

No commercial property owner can remove uncertainty from the market, and clearly it would be futile to try. However what can make life easier, is creating options.

Options to retain a good tenant, to reconfigure space, to re-let, to regear, to reduce concentration and to respond to a problem before it gets worse.

This is what makes income more resilient, and it’s also why active asset management matters most when conditions become uncertain.

We can’t control the economy, but we can prepare the asset for whatever the economy throws at us next.