In a retail property today, the tenant mix is likely to be the ‘make or break’ factor in property performance. A good tenant mix will help the property thrive and underpin the rentals for the property and the landlord.
So how can you get to know what works? It is easy to see examples of tenant mix profiles in other properties and then compare them to your property. Look for the situations that work and those that do not.
Clustering is one factor worth examining in other properties to see how they may handle the cluster concepts. Whilst you are there, look at their vacancy factors and just how they work with them.
Competing properties will also have factors of tenant loss and relocation; that is a good source of new tenants for your property.
Here are some other tips that can help you in your tenant mix design and property business plan.
Understand the local demographic of customers before you do anything else. Are there changes in the local area that will impact the customer base now or in the next couple of years? If so the factors will need to be in your business plan for the property. The business plan should be done every 12 months and reviewed quarterly.
Undertake a customer survey in your property and in the surrounding area. You will learn so many key things from that process. Why do people shop in your property? What would they like to see changed and why? How often do people come to your property and on what days?
Check out the existing competing properties in the local area. In this way you will see the differences that their customers see. Pay particular attention to the access and convenience factors with those properties before you look at the tenant mix internally. If there is one thing that frustrates many shoppers it is access and convenience. Can your retail property improve on anything that the other properties are struggling with?
The maintenance of your property will be driven by property layout, customer visits, and building age. Retail property is one of the most costly property types to maintain. That is why outgoings in retail are so high.
The anchor tenant or tenants in your property are likely to be established on a long lease(s) with appropriate rent reviews. The anchor tenant profile will help you lease the specialty tenant premises in the property. Create sound relations with your anchor tenants so the customer targets that they have integrate to the overall marketing plan for the property overall and the general tenant mix.
A great retail property performance is a constantly moving target. Over time you will be modifying your plans and strategies when new things are seen or the local area changes. Get involved with the local retail businesses and shopping community; you will soon know what they are looking for.
When it comes to leasing a commercial or retail property, you will find that there are special things that should happen to keep control of the transaction and the final stages of property handover. Eagerness produces errors and omissions from a leasing perspective.
The simple fact of the matter is that control helps us get the parties to the lease ‘across the line’. For that very reason it pays to have a checklist approach to the leasing process and property handover.
When you get a lease negotiation underway, so many things can come into the transaction and divert the discussions and agreements. Very commonly in the involvement of solicitors on behalf of the parties to the lease you will see that slow-down process start.
You are working for the client and they want a timely lease that is correctly executed and implemented. Always stay with the negotiation and the lease momentum to the very end. If a solicitor has the papers on behalf of a client, chase-up the situation and see where things can go next.
Here is a checklist for the leasing of premises; it features some of the main things that are really important in leasing and a timely outcome. You can add to the list based on your property type, and location.
The correct lease documents should be prepared with accurate regard for the facts from the original lease negotiation. Ensure that the client’s solicitor understands all of the facts and the unique elements of the property.
Some lease documents are just part of the required paperwork for the lease occupancy. At times there are other papers such as fit out agreements, disclosures, licences, and side agreements. All of these should be correctly signed and in the order that is relative to local property laws and leasing situations.
Any incentive agreements between the parties should be correctly documented and signed.
Any plans and drawings that are part of the leasing agreement should be sourced and available for approvals.
Any consultant reports relating to the transaction should be sourced. Typically they are mechanical, electrical, structural, and base building.
The permitted use for the premises should be clearly set and agreed between the parties. That use will have impact on the design of the premises.
Landlord approvals may be required before any building approvals are sought from the building and construction board or office.
All monies to be paid under the lease should be taken at the time of handing over of all lease documents from the tenant. Those monies should include bonds, guarantees, fit out contributions, and any other important financial commitments from the lease document.
Do not under any circumstances hand over the keys to the premises until the landlord and their legal advisor have indicated that all papers and monies are correct and in order with both parties. Importantly those documents should be signed by both parties.
Document the condition of the premises before the tenant takes over. This will be an important fact of record when it comes to the end of the lease.
When you create a lease handover checklist, you can keep the transaction on track to finality. That then means a happy client and a good commission.
When you lease a retail property or promote a vacancy to be leased, there is a fair bit of information to be sourced and set as part of the vacancy marketing effort. When you are fully informed and prepared, the retail leasing situation is much easier and more direct.
A retail tenant will ask lots of questions. They have a business to run and they need to know that the property can support their intended operations, marketing efforts, and trade.
The landlord that owns the retail property will have a lot to do with the overall success of the tenant mix and the levels of sales. Inexperienced retail landlords can destroy a tenant mix and retail property performance if they do not devote the correct focus on balancing key relationships.
Owning a retail property is a special process. The fine balance between the tenants, customers, property manager, and landlord should be protected and encouraged.
Some of the critical leasing factors in a retail property or shopping centre will include:
Levels of rental to be charged should be fair and reasonable in keeping with the existing and prevailing market rents. Far too many landlords set rent based on their need to finance the property or boost the property value. An aggressive rent can ‘kill’ the tenant mix faster than you would expect.
Types of rental will change from property to property but will include gross rent, net rent, and incentives. All of these rent issues require decisions based on existing market trends. Rental targets for the property should be set in the business plan for the property and be reviewed annually.
Tenancy space details will include area of the premises and configuration. Be careful in setting rent with narrow, long, and deep premises. When it comes to retail rental, it is the ‘frontage’ of the premises that sets the rent and sustains the customer interest.
Permitted use for the premises will be set based on the requirements of occupancy and the prevailing tenant mix. Decide what types of tenants you really want for the vacant premises. How will they balance the offering of adjacent and nearby tenants?
Existing tenant mix details should be reviewed. In doing that you can ascertain just what vacancies are coming up and how they will impact the zone of the property.
Supply and demand for retail space will change in the local area during the year. The impact of new property developments will also reflect in your market rental. Keep in contact with the local property development office to understand the new developments that may be coming up.
Car park information will include numbers of car parks and the access methods for customers and tenants. When it comes to retail property performance, the function of the car park will be important for the future levels of customer interaction and trade. In many respects, car parking today needs to be accessible, friendly, and secure. Customers will soon turn away from a property if car parking is too difficult.
Customer demographics and levels of trade will change throughout the year. Ensure that you understand the typical customer that comes to the property and the reasons why they do so. Those factors are likely to change throughout the year.
Signage rules and regulations will apply to particular tenancies. Any new tenant to a property should be suitably briefed on the signage policies that apply to shop presentation.
Landlord works and property improvements will be important issues to the incoming tenant. Exactly what will be provided to the tenant as part of the new tenancy lease? Will the lease for the tenant require special modification and allowances for unique tenancy improvements? What should happen at the end of the lease term with regard to premises make good?
Services and amenities to the property and to the tenancies will be important. All the expected facilities services and amenities should be well maintained and up to date. A property that is neglected when it comes to the maintenance of these issues will soon become redundant from the tenancy perspective.
Guarantors and the security deposit requirements will be parts of the negotiation process for the new lease. Decisions will need to be made regards the types of guarantees required and the amount of security deposit. These factors may vary depending on the tenant that you secure for the premises.
Fit out design and specifications will be important when a tenant is identified for the premises. Certain rules and regulations will be required to control the tenant during the fitout construction phase.
Outgoings and occupancy charges will have an impact on the tenant’s ability to trade. Review competing properties in the surrounding area to understand exactly the types of outgoings that are acceptable in the prevailing market conditions. Your property should be competitively positioned and not exceeding those charges in other properties.
Standard lease terms and conditions will vary from property to property and landlord to landlord. Those lease terms and conditions should be set prior to the premises being marketed. The landlord should consult with their solicitor to ensure that a good standard document is ready and available for use when the tenant is located. In most cases, the standard lease document will be modified for the existing tenancy and the requirements of occupancy. If you locate the franchise tenant for the property, it is likely that they will bring their standard lease to the negotiation. If that is the case, the landlord for the property will require legal assistance to shape the franchise tenant lease into something that works for the landlord and the property investment.
Property as built drawings will be very handy when it comes to tenancy negotiation and tenancy design. The as built drawings would normally be available through the property management office and or the landlord. The drawings will be required to help the tenant to understand tenancy design and the availability of mechanical plant and hydraulic services.
So the leasing of a retail property or premises within in a retail shopping centre will be quite a specific task requiring detailed information. When you prepare for the process of retail property leasing, negotiations can run more effectively and positively.
When you work in commercial real estate, you will see those ‘retail specialists’ in the local area that focus within the retail property market. Those retail people are very specialized given that their property type is quite specific and heavily geared to the local demographic.
In simple terms, a retail leasing specialist or property manager should help retail tenants improve their business and on that basis improve property occupation. When all of this occurs correctly, the prevailing market rental for the property will be underpinned and potentially grow. Over time this will also help the landlord for the property achieve a better price if and when the property comes up for sale.
So there is a significant link between tenant selection, retail trade, property leasing, and property performance. For this very reason those of us in the industry that understand retail property do so at a very high level and can talk across a large variety of strategies that relate to retail sales, leasing, and shopping centre management. The clients that we work for and especially those that own any complex retail property will only work use the best retail property people in the industry.
There are many things that should be considered and consolidated into your retail experience and knowledge base.
Market rentals will change from property type to property type. They will also change by location within the property. The positioning of a tenancy inside a retail premises will dictate the levels of rental, as will the size of the premises. There is no fixed and firm equation that can be provided to help you here, except the process of gaining market awareness and information from comparable properties. Over time you will understand what makes a property location different than others. You will also understand the priorities of tenancy location that will boost the rental in one particular spot or one particular property.
Different businesses can pay and absorb different levels of rental as part of property occupation. As a case in point, you will find that one tenancy type can pay more rental than another tenancy type. For example you could compare a shoe repair type tenancy to a food type tenancy. The levels of rental from each will be completely different for the same shop location, given that they will have separate levels of turnover relative to their business type. If the rent is too high for the business type, they will simply disappear as a tenant.
Different retail leases and different lease strategies will occur all the time. You become a strategist when it comes to utilising rental incentives, gross rent, net rent, lease terms, rent reviews, and option strategies. All of these are negotiated with due regard to the plans of the property owner, the age of the property, the tenant, and the demographics of the shopper.
When it comes to retail property, the success of the tenancy mix will largely be driven by the demographics of the area. Stay on top of the changes to the local property demographics and ensure that the property matches the current and future needs of the local community. That being said, you really do need to know exactly who your shopper is and why they visit the property. You also need to know what they require and when they need it.
Tenant enquiry for new premises will change from time to time based on the regional and local business sentiment. For this very reason, you should be staying very close to the retail businesses and franchise groups. All of those people in your database should be contacted regularly to identify any changes in leasing needs or opportunities.
Watch the activities of any competing retail properties in your area. That will include the tenancy mix, expansion and contraction factors, refurbishment, and relocation challenges. These trends and activities will give you some leverage in leasing and property performance.
Retail property people are specialists in their property craft. Their knowledge and expertise will be sought after when it comes to the larger shopping centers and the bigger retail leasing needs. Franchise groups and anchor tenants will also seek the assistance of retail property specialists.
When you manage or lease a commercial property it pays to have a good filing system when it comes to the tenancy mix in every property. Every tenant should have a series of files that allow you to get to information fast and effectively. When things are happening in a tenant matter, you want to go the right file and get what you need to respond in a timely and effective way.
In properties with a lot of tenants, the filing system is highly important. That then brings me to another issue of just who looks after the files and places records and activities in the ‘right file’. If you do not file the right information, then the property management activities get difficult. When something goes wrong you simply do not know where to go, or you need a lot of time to get to an answer for the landlord or the tenant.
The trick to all of this is that you build a good property management and tenant filing system from the very start of the property management appointment.
Some may argue that you have the ability to scan documents and store them on some ‘hard drive’, and that is just fine, but the reality of the industry is that you do need some paper files to review and work with.
Here are some ideas to help you get your property management filing system up and running:
Each tenancy should have a correspondence file of current and past issues. This is where you go to look at letters and notes relating to current tenant matters. This file is also important from an historic perspective; you can go back and see what happened and how issues were agreed. This is really important where some tenants are not following the lease terms and conditions.
At the front of the tenant file, place a summary sheet of lease terms and conditions that you can quickly refer to in the case of a question or problem. This sheet should be inserted in the file at the start of any property management appointment and leasing negotiation. This information sheet should be updated as the terms of tenant occupancy change.
Any income matters of rent review, option, renewal, alterations, and rent splits should be entered into the property computer records using a standard template form of record. When this entry has been done, the form can be placed in the tenant file for future reference.
A copy of the lease and any other lease papers or licences should be held on file. Notice I said ‘copy’ and not ‘original’. It is not a good practice to keep original lease documentation in your office; if you have a fire, or if you lose the file the ramifications are not good especially if you have a lot of properties and tenants.
Any lease alterations and special billings for the tenant should be recorded on the tenants file for reference.
Good property records and tenant records will help your property management process. As your property management processes change, you can improve your systems and records.
When you lease a commercial property as a real estate agent, there is a temptation to pass the transaction over to a solicitor to complete and finalise. The temptation is more relevant and real when you are very busy as an agent on a number of properties at the same time. The reality of the situation is that you must stay with the negotiated transaction to the very end after all the monies have been paid and a transaction has been completed.
It is very common for the property transaction to derail for a number of reasons. When solicitors get involved on the parts of their respective individual customers, the priorities and guidelines of the original deal can become the centre of a debate. As the real estate agent who did the deal, you need to stay with the transaction to the very end.
Here are some guidelines that can apply to the standard leasing transaction that you could negotiate. Develop a checklist for the process and modify the checklist for your local area taking into account special property conditions and the prevailing property market.
The lease that is created should be in keeping with the original terms of the negotiation. It is likely that the lease will be debated between the parties when the document has reached a final form. Ensure that all the parties sign the document correctly and in the right order.
In some circumstances there can be other documents and disclosures relevant to the original lease. They may be disclosures, licences, car parking agreements, naming rights, and other documents. A special note should be made regards retail property; this property type is quite unique and special when it comes to leasing. A retail property transaction will normally have extra disclosures and statements regards occupancy costs and lease arrangements. Check out the local legislation relative to property in this regard. You cannot negotiate something if you do not know how to document the final agreement.
When a lease document is signed, ensure that all the necessary monies are paid in keeping with the transaction. They will normally be rental in advance, deposit monies, bonds, and bank guarantees. Those monies should be cleared at bank prior to any occupancy being given and the keys handed over.
If the tenant has any special needs or requirements relative to the new lease fitout design, they will need to enter into some dialogue with the landlord and or building authority regards lodging plans and drawings, together with the approvals for the building or tenancy modification. The as built drawings within the premises will be of high value to these discussions. Get copies of the as built drawings from the property landlord.
When a tenant has been given access to the premises, it is quite important to remain in contact with them for a number of weeks in case the occupancy arrangements are a problem. The property manager or the landlord for the property will also have an involvement with the tenant to minimise difficulty.
So the message here is for the negotiating commercial leasing agent to remain in contact with the tenant and the landlord throughout the lease transaction, and even after its completion. In this way you will maintain the momentum for the transaction on behalf of your client. The end result will be a good commission.
A commercial real estate agency wants to dominate the market and create a solid market share. Whilst this is a worthwhile goal, it is also a challenge to achieve. There are many variables that will have a direct impact on the performance of the agency.
Some of the most frustrating aspects of managing and running a commercial real estate agency today relate to the skills of the salespeople. Finding salespeople to work within the business is one thing; finding great salespeople is really hard.
Some salespeople will seek to improve their business performance and drive better market share. Over time their income and listing profile will rise. Finding the right salespeople with this mindset can always be a challenge; the top agents of the commercial real estate world are diligent and driven. They know how to drive market share. They are prepared to call landlords, tenants, property owners, and business proprietors.
Here are some tips to help you build your market share as an agency or as a salesperson.
The traditional signboard placed on property listings for sale or for lease is perhaps one of the most important marketing tools that you can use. It is cheap and it is a very effective visual marketing tool seen by all of the property owners and business proprietors in the local area. Invariably, the top agents will have a strong signboard presence in the local area. As a priority, seek to get signboards on all of your listings as quickly as possible. When you place a signboard on a property, directly market their property into the local area personally. That means calling in on property owners and business proprietors to talk about the new listing. That simple activity will increase your market intelligence significantly.
The best listings to work on are exclusive listings. So often I hear agents say that they cannot achieve or attract exclusive listings. Top agents convert exclusive listings more than open listings; they do this because they are good at pitching and presenting their services. They are also well known through the local area as experts at what they do. Exclusive listings give you control of your market and the client; in this way you can achieve a better result over time. If you cannot easily convert exclusive listings, look to improving your knowledge and relevance to the clients that you act for. Seek to specialise, as this will help you build your exclusive listing profile. Practice your skills in presentations and pitching.
The Internet is well established as a critical component of commercial and retail property marketing. Most generic agents simply list a property and place it on the Internet hoping that the Internet profile and exposure will generate enquiry. There are many more things that you can do with the Internet to improve your listing performance, enquiry rate, and personal profile. Social media, article marketing, and blogging are very relevant and are highly effective tools when it comes to commercial real estate marketing.
The database that an agent utilizes will be the foundation of future business. Each agent or salesperson should be working with at least 600 prospects in the local area. The only way you can manage and work with such a large number of prospects is through an effective and up to date database. Managing the database should be a personal strategy and process that you undertake at the end of each day. Don’t to delegate the process to some administrative person in your office; failure to take ownership of your database will destroy your market share.
Cold call prospecting should be first on your agenda each working day. Contacting at least 20 to 25 new people at the start of every working day will help you improve market share radically and quickly. The other half of your prospecting process can be with people that you have made contact with previously. Balance your prospecting equally between new people and established prospects.
The secret to building market share as a good commercial real estate agent is in the systems and the consistency that you establish. Random actions produce random results. Develop your system including some of these critical items above.
If you want to get some more tips on how to find tenants to fill your vacancies in your properties, you can get them in our Newsletter.
When you lease a retail property or shopping centre, understanding the retail tenant’s needs will help you significantly when you try to close a deal or lease. Retail tenants are quite special when it comes to occupancy; you need to know a lot more about them that the average office or industrial tenant.
Here are some ideas to help you work with retail tenants and fill vacant tenancies in your property:
They will have an ideal shopper demographic for their goods and services. What or who is that shopper and do you have plenty of them in your local area? Is that demographic changing in any way?
You may find that the retail tenancy is part of a franchise group structure. That can be a good thing because the tenant coming into the premises will have an established business plan and retail support.
What shop size will the retailer require? Will that shop need to be on a corner point, internal to the shopping centre, or on a higher foot traffic zone? Some retailers have to be in particular areas to make their expected sales. That being said, a successful retailer will bring other shoppers to the area and help boost sales for tenancies nearby.
What improvements will the tenant require in the shop? Some of those improvements could be a landlord expense to get the tenant to commit to a lease.
Visit some other shopping centres in the local area so you can understand just how successful some tenants and brands are in trading and in established tenancy mixes. Look for the synergies between tenant types and locations.
Each established and experienced retailer is likely to have a series of lease requirements that they will negotiate with the landlord for each property. Some of those terms and conditions will be non-negotiable as they have an impact on the way the tenant does its business. Get a copy of the standard lease conditions that the retailer believes are critical to their business.
The common areas within a retail property may add to the sale potential for some tenants. A food court is a good example of this synergy and need. Visit some other food courts or similar areas and understand what works and why. If a customer can spend more enjoyable time in a property, they will likely spend more money.
Presentational factors in a retail property are more important than in any other property type. Retailers know when the landlord is cutting corners on maintenance to save some money. Eventually the poor property presentation will impact the customers and shoppers coming to the property.
Transport corridors and roadways will have an impact on the way people get to a retail property. If the process of access is too hard, the shopping centre can lose trade fast.
Public transport to or near your property will be a great advantage. How do people get to your property now and is it efficient? Be aware of intended changes to roadways and highways; one small roadway change can impact your property in a big way.
Car parking is always important to retail trade and shopping centre success. In some locations that car parking should be under cover and convenient. How big is your car park and is it convenient for users or shoppers to the property?
As mentioned earlier, and as you can see from the information above, the retail property and shopping centre is a really special property in function and operation. Lease the property carefully and get to know all the retail tenants very well.
Retail property performance is a fine balance of a number of relationships between the tenants, the landlord, and the community. When the balance is correctly established and maintained you can see the retail property and the tenants thrive.
In pressured times like that of today where retail trade is impacted by the internet and economic sentiment, the retail property manager has to be very close to a number of key issues in their managed property. In that way they can stave off many of the problems that can occur with the property over time.
Here are some factors to monitor and address:
Tenants with lower levels of stock should be observed and questioned. The lower levels of stock may be the result of a recent stocktake sale, or they can be the result of a shift in sales results. You are looking for tenants that are not performing well in sales or that are changing their service or product offering to that which is not permitted under the terms of the lease.
Changes to the staffing of tenancies and businesses will be an indicator. If the employees in the tenancy business are under constant change, it is wise to understand what is going on and why it is happening.
Tenants that need to relocate should be worked with. If their business is under pressure, it is better to achieve a process of cooperation to help them in stabilising. Any alternative is likely to involve a protracted vacancy and that is not going to help anyone.
Tenants that do not maintain presentation of premises or stock will drag down the other tenants in close proximity. Quality lighting and good levels of presentation are really important in retail property.
Clustering advantages or pressures in a property can help you either way when it comes to sales and tenant mix. Look for the tenants that can build sales from each other. Build clusters of tenants that work for you. The results will be a stronger market rent.
Anchor tenant weakness or trade problems should be addressed quickly. Any customer perceived weakness in the anchor tenant will soon reflect in a property decline in sales.
Lower levels of sales in the property or with some tenants will be a concern. The sales in the property should be tracked by tenant and by tenant category; in this way you will see how the property and the tenants are tracking in the local community seasonally.
Shifts in customer demographic will produce a change in sales. Look for those changes and help the tenants to act early. Profile your community at least once per year and ask the customers what they expect from the property and what they like about it.
New property developments to occur in the local area will detract from your customer base. Watch out for new properties coming up for sale or lease that shift the balance of supply and demand.
Higher incentives in getting a new tenant to your property will occur from time to time depending on the supply and demand for local retail space. Be flexible and adaptable when it comes to incentives for new tenants.
Competing properties in the local area can be taking some or all of your trade. Monitor these other properties frequently and watch for changes in the anchor tenant offering or levels of trade. If the anchor tenant changes, it is likely to shift the retail balance in the entire local area, and other retail properties.
Aggressive landlords that attempt to push the rental of the property too high can threaten the tenant mix stability and the viability of a tenants business to operate. Tenants will soon spread the word of any difficulty with the landlord, and that can have an impact on the property overall and any future leasing requirement.
A retail property is a special place for shoppers and tenants. Manage your retail property well and with a base strategy that encourages trade for all concerned.
If you want more tips on retail property you can get them in our newsletter on this site.