Common Sense Tenancy Mix Analysis in Retail Property

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.

  1. 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.
  2. 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?
  3. 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?
  4. 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.
  5. 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.

Leasing Tips and Handover Strategies

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.

  1. 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.
  2. 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.
  3. Any incentive agreements between the parties should be correctly documented and signed.
  4. Any plans and drawings that are part of the leasing agreement should be sourced and available for approvals.
  5. Any consultant reports relating to the transaction should be sourced.  Typically they are mechanical, electrical, structural, and base building.
  6. 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.
  7. Landlord approvals may be required before any building approvals are sought from the building and construction board or office.
  8. 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.
  9. 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.
  10. 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.

Leasing Factors in Retail Property Today

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:

  1. 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.
  2. 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.
  3. 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.
  4. 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?
  5. 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.
  6. 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.
  7. 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.
  8. 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.
  9. 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.
  10. 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?
  11. 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.
  12. 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.
  13. 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.
  14. 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.
  15. 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.
  16. 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.

Shopping Centre Managers – Retail Property Leasing Specialisation

woman shopping for pears in supermarket
Retail shop leasing requires special knowledge and experience.

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.

  1. 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.
  2. 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.
  3. 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.
  4. 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.
  5. 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.
  6. 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.

Finding More Retail Tenants for Your Tenant Mix

girl shopping for CDs and music
Choose the best tenants for your tenant mix by checking out the competing properties and tenants.

When you manage or lease retail property or premises within a shopping centre, it can always be a challenge to find the right type of tenants for the vacancies as they arise.  It is important to stay ahead of your vacancy problems and challenges within the tenancy mix.

If a tenant is nearing the end of their lease, it is simply a matter of them vacating the premises or a new lease being created.  If you work 12 months out from the event, you can plan whatever steps are necessary to resolve the vacancy quickly and effectively.

Here are some tips to help you with finding tenants to lease retail property:

  • Monitor the activities of other shopping centres nearby.  They will have some tenants looking to move or change premises for a variety of reasons.
  • Keep in contact with all the franchise groups through the region and nationally.  They may be looking for new premises for another franchise tenant location.  That being said, you will need to understand the lease requirements and lease documentation standards that apply to each franchise group.  It is likely that the lease documentation will be different to that which the landlord would normally use.
  • Create a retail leasing property update newsletter.  This newsletter can be circulated through the retail business community in your local area.  In the newsletter you can provide tips and ideas regards leasing new premises.  Given that most businesses have Email contact, a newsletter can be based on the use of an auto responder and an Email System.
  • Maintain regular contact with all the businesses through the local area.  Have particular focus on the successful businesses with strong branding.  Give them regular property updates so they can understand the changes in rental and incentives as they apply to retail property.
  • The anchor tenant in your retail property will have a significant impact on customer visits to the property and the trade for the specialty retail tenants.  A good anchor tenant will also attract new tenants to your property.  Encourage the anchor tenant to interact with all the specialty tenants in the shopping centre.
  • A shopping centre that is well maintained and marketed to the community, will be of attraction to new tenancies.  Ensure that your property satisfies both of these issues.  Establishing a productive marketing campaign to attract more shoppers to the property through all of the trading seasons.

When it comes to leasing and managing retail premises, early lease negotiations and preparation for any new tenant vacancy, marketing, and occupancy are key strategies to adopt.  A retail property is a vibrant and yet challenging type of property investment.  Work with your tenants at the earliest possible time, and you will find good results for all concerned.

Vacancy Rates in Retail Property Today

woman walking in shopping centre supermarket
Get your vacancy rates down. Monitor all leases and tenant changes. Find new tenants fast.

The most important step in keeping your shopping centre or mall occupied is realising the total economic impact of having to re-lease the space.

Consider the effect should one of your tenants go out of business:

  • Can you find a replacement tenant?
  • If so, how long will it take?
  • Will you be able to achieve anywhere close to similar rental from a new tenant?
  • What will legal fees cost you, if you choose to go after the old tenant for leasehold performance?
  • What will leasing commissions for a new tenant cost you?
  • What will tenant improvements cost, plus an inevitable period of free rent?

Unless you have awfully deep pockets, you can’t afford substantial vacancy in your centre – so you can’t afford to ignore your tenants’ concerns.

  • Be willing to listen to their concerns. Tenant feedback can be most helpful.
  • Work on a new promotional campaign – with tenant input.
  • Does the centre need repairs? Paint or landscaping, for example? Consider the costs of repairs versus the cost of re-leasing should several tenants decide to leave.
  • Always search for ways to improve your centre. Strive to achieve the most dynamic tenant mix. If a tenant vacates, work hard to improve that space with a promotional tenant who will help the rest of the centre.
  • Finally, know your competition. If your centre is not competitive with those in the surrounding area and your centre management responds with complacency, the centre is doomed to failure.

Tenant Mix Plan and Strategy for a Retail Property

man outside a basket shop
Plan the placement of your tenants in the shopping centre.

When it comes to retail property performance, the tenant mix is a critical part of the leasing strategy. Well placed and selected tenants will help you as the property manager build the customer experience for the property. The end result is a property with:

  • Low vacancy factors
  • Good levels of customer visits
  • Optimised market rental
  • Solid enquiries from the local business community for leasing

All of this means that the landlords property can perform well in the current economic climate.

Property managers and leasing managers should make the tenant mix strategy a key part of the annual business plan for the property. Some good ideas to merge into the plan would include the following:

  • Base rental levels around which new leases can be created
  • Types of rental that allow the landlord to recover a good part of the property outgoings costs
  • Standard lease strategies that set targets on lease terms, options or renewals, makegood clauses, rent review processes, rent review types, etc.
  • Strategies of tenant occupancy that support the anchor tenant in the property
  • Early renewal processes for tenants that are desireable for ongoing occupancy in the property
  • Clustering of like type tenants so you can build off the sales activity of each tenant

Tenant optimisation is a result of a great tenant mix plan and its implementation.

Landlords, tenants, and property managers are all part of the property performance package to underpin a retail property performance.

Choosing the Right Tenant for the Retail Tenant Mix

woman shopping with bags
There are many steps to building a good retail tenant mix.

It is incumbent on any landlord to know his tenant’s business and how it will balance within the overall tenant mix profile. The landlord can then have a sense of how a lease deal can be made to ensure a long-term tenancy. The soundest economic lease agreement most probably will not be the highest rent agreement. Take the following steps when evaluating a prospective tenant:

  • Rent Capability: Question the tenant’s ability to pay the rent being negotiated. Be willing to move the tenant into a smaller or less expensive space if doing so is in both parties’ long-term interest.
  • Profit and Loss history: Ask for the tenant’s other stores’ profit and loss statements for comparative analysis.
  • Sales projections: Ask the tenant for the projected sales at your location. Do the numbers seem high or low in comparison with the per square foot sales of other categories like this in the centre or trade area?
  • Communicate: Establish a trusting rapport going into the tenancy. Handle relationships one to one so you hear of problems before it’s too late to resolve them.
  • Management strategy: Ask about the tenant’s management plan. Is he going to be an absentee owner, or a hands-on operator? Will his management team be able to weather a downturn in the economy or a direct competitor across the street?

Likewise, shopping centre management should continually evaluate existing tenants. Check their sales trends – are they up or down? If they are down, a meeting may be in order to address any existing problems. If your existing tenant has established a strong track record over a number of years, don’t lose him. Communicate. Again, understanding each another’s position will effectively maintain long-term tenancy.