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.

Tenant Types in a Retail Property

teenager shopping for CD's
Some shopping centre tenants are going out of business. Choose your tenants with a view to the future of retailing.

When it comes to leasing a Retail Property or Shopping Centre, the tenancy mix is critical to the generation of income. When you have multiple tenancies, it is absolutely essential to make sure they all balance with each other.

One important fact of tenancy mix design is that like tenancies can complement each other in the same general location and encourage the spending of the shopper. Further to that, it is quite likely that complementary tenancies selling associated products to the same type of shopper will also work well together.

This means that you can put tenants together that all serve the same type of customer. For example this could be men as it target shopper, and in that case you could put together a series of tenancies within the tenancy mix including:

  • Men’s fashion shirts
  • Men’s shoes
  • Men’s suits
  • Men’s golfing accessories
  • Sportswear
  • Men’s casual wear and jeans

This concept creates a cluster of shopping. Importantly it should also be softened with specific specialty shops of general interest to the broader family and not just men. For example you could place a number of coffee shops or sports drinks amongst the mix.

Tenancy mix is not difficult. It is just a matter of the type of tenancy mix and strategy that will serve the customer that typically visits the shopping centre on a regular basis. When the customer feels that they are well served in visiting the shopping centre, the number of return visits will escalate and the number of dollars spent in shopping will increase.

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.

Attracting Tenants to Your Retail Property

man shopping for fruit
Attract the right tenants to your retail property today.

Every property is unique and special. Each property has got a mixture of negative and positive issues emanating from the design and layout. To set up a productive tenant mix you have to do the best with what the property offers design wise.

A successful property requires successful tenants, and not just tenants that pay rent. This is where tenant mix is critical. To do this you need to know:

  • Rents
  • Lease terms
  • Fitout construction rules and costs
  • Incentive alternatives
  • Option structures
  • Rent review alternatives
  • Tenant preferences

Tenants are selective in what they lease. They want the best, and in this market you have to provide it if you are a property manager or a landlord. Your property has to be the best available offering in the property market at the moment.

Consider this question. What are the top 4 reasons why someone should occupy your property as a tenant? If you do not have a solid set of answers then you have a problem.

Your property should provide something that the other properties do not have or find it difficult to offer. Your property has to be the best available. You should be a property magnet to attract the tenants. So where do you start when attracting tenants to your tenant mix?

The features of the property and the design of the property will be the base from which you consider where the tenants are going to be placed. Look at the design and consider where the customers will come from inn and around the property.

What will be the ‘ant track’ by which the customers walk and pass through the property? Any corners or turning points in the ‘ant track’ are likely to be high traffic areas and if handled correctly will be the source of higher rent. At these corners you want smaller tenants with a vibrant retail offering. The successful retail property is totally about the tenants and not much else.

Without the tenants then the property will likely fail. Look around. Details of physical features of properties should be noted so that you can build on opportunities and positive aspects of the property with potential new tenants.  All the information gained should be included on an appropriate and organised listing form and recorded as both hard copy and as part of a computerised listing package.

Ultimately you will be producing a leasing brochure and information package to present your exceptional property to potential tenants in its best aspect.  All investors and owners of commercial property have differing investment and ownership needs. This then leads to the core decisions that they will make when you locate a tenant or adjust the tenancy mix.

It could be that the client has a preference to hold the property for a short period of time and then undertake a redevelopment or expansion of the property. This will have significant impact on how you would construct the tenancy mix and lease profile for the property.

To handle these facts you interview the client and discuss the investor’s property requirements before proceeding with any part of the professional leasing and tenancy services that comes with commercial real estate. You need to match your leasing and tenancy services to their property holding needs. Your skill is in assessing the potential leasing and tenant balance of the property and then shaping the leases to support the rental income needs is essential.