When you manage or lease larger commercial or retail property, the budget process each year is quite complex.
Most particularly you are budgeting complex issues such as these:

• Income growth
• Rent reviews
• Expenditure payments in all maintenance types
• Capital expenditure items
• The timed payments of larger accounts such as council or municipal rates
• Energy consumption and economies
• Tenant mix expectations
• Vacancy rates

Given that all large properties contain many tenants and leases, the process of budgeting is lengthy and detailed; nevertheless it should be done.
Without a budget you do not know when the property is performing poorly or when the market around the property is changing.
One of the best ways to approach the budget process for a complex managed commercial or retail property is to start about 3 months before the budget is due.
Here is a checklist of items to follow in preparing for those 3 months of budget preparation:

1. Research the vacancy factors in the local area of all the properties that are similar type to your managed property.
   Are there any excessive vacancy threats in the local area? Which way are vacancy rates heading? Are there any vacancy threats that you can see coming up?
2. Check out the competition properties to see what impact they have on your property.
   You should assume that these other properties could draw away your tenants with better incentives or rental rates.
   
3. Look at the supply and demand of lettable space in the local area.
   Pay particular attention to new property developments coming up.
   They will shift the balance of property demand and occupancy.
   They will also shift the rental rates and incentives available to tenants.
   
4. Get an independent valuation done for the subject property by an experienced local property valuer that knows the pressures and changes in the local area.
   
5. Interview the landlord to see if they have new plans for the property such as sale or renovation that would shift the focus on rent or vacancy allocations.
   
6. Look at the last 3 years of expenditure records for the property and break down the results into the separate categories of expenditure.
   Identify the rate of change or inflation that has occurred to each of the expenditure categories.
   Some of the categories will escalate at rates that are different to others (insurance is a prime example after a major risk event or cost).
   
7. Assess the industry benchmarks for property outgoings and see how your property compares.
   If you are way off the mark, then find out why; a property with high outgoings is difficult to sell and lease.
   
8. Find out about the local municipal property value ratings and when they are next expected to be done.
   These rating valuations will shift the expenditure on the property significantly given that municipal rates are typically about one third of the total of outgoings for the property.
   In many cases it pays to dispute the valuation when it is done in an effort to keep it low.
   Timing is critical if you are going to lodge a dispute on a municipal valuation for rating purposes; you will also need an independent valuation to support your arguments.
   
9. Research all your existing leases and pay particular attention to rent reviews (types and timing), options to renew occupancy, vacancy factors, incentives and rent free periods in any new lease expectation, and expiry dates.
   These will all impact the net income for the property.
   
10. Are there any intentions to expand the lettable area within the property with new tenancies? How will this be done and what is the timing? You will need to allow for incentives and rent free periods for the incoming tenants.
    You will also need to consider how the capital expenditure for the tenancies will be handled by the landlord as those costs can be large.
    

When you know these things, you are ready to start your budget process.
Expect that the budget process will take some weeks so do not cut yourself short on time; that is where mistakes are made.