Retail Shopping Centre Leasing Strategies that Work

When it comes to leasing a retail shopping centre, the mechanism of leasing can be quite specific and specialised.  That is why some leasing experts only specialise in retail property.  It is a very special part of the property market requiring good market knowledge and excellent tenant contact.

A shopping centre or a retail property is a vibrant business environment and it needs to be understood for the best leasing results to be obtained.  To a great degree, the success of the tenants will be generated from property performance, tenant mix, customer interaction, and the landlords support.  There are many ways that these issues need to evolve if the retail property is to succeed for the long term.

Here are some tenant mix strategies to apply to a retail shopping centre to assist the leasing process and the overall tenancy mix.

  1. The tenants that are chosen for the property should be the tenants that satisfy the demands of the local community and customers.  Tenants that are well matched to the local demographic will attract more customers to the property over time.  Tenants of this type should be integrated into the overall tenancy mix at strategic places and within specific retail clusters.  Clusters of tenants generate more sales in the property.  A cluster is a specific retail tenant mix strategy.
  2. Get to know the franchise groups in the local area that may require premises in your property at any future time.  There will also be other franchise groups that are not yet located in your region or town.  Connect with all the franchise groups that have a reasonable retail offering and therefore potentially an attraction to your customer base.  Understand what these franchise groups require of a property, and population demographic.  They will also have certain terms and conditions that relate to their lease occupancy and property selection.  In many cases they will share that information with leasing professionals in preparation for identifying the right property.  Get to know the franchise groups.
  3. Monitor the activity of all competing retail properties locally.  That will include the rental profiles, vacancy activities, and lease occupancy.  Selectively approaching the tenants within these properties will help you with market intelligence and leasing strategies.
  4. Identify any new property developments that are soon to be released on the market.  They are likely to shift the balance of available space and rental across the region.  They will also try to entice tenant movement through attractive incentives.  That can then make any older properties in the area less attractive to some tenants.  The only way to combat this problem is through competitive rentals, and exceptional property performance.  Retail tenants will always be attracted to properties that integrate well into their customer base.  Make sure your retail property does exactly this.
  5. Your existing tenancy mix will contain tenants that are more or less attractive to the future of the property.  You will require a tenancy retention program to define the differences between those tenants.  Over time the retention program can remove difficult tenants, reposition better tenants, and reduce your vacancy profile.  The tenant retention program is a significant business tool and point of difference for many retail leasing experts.

So all of these things will help you with the necessary momentum to improve your leasing activity; over time you can lift your tenancy outcomes.  Respect the differences in retail property leasing, and understand the specialised nature of lease negotiation.  Many commercial property agents have made a significant and very rewarding career from retail property.  You can too.

Selecting a Good Retail Leasing Expert

When you run a retail real estate agency specialising in retail leasing and property management, you really need a top agent that knows what retail property is all about.  The leasing of retail is very special; far more so than office or industrial property.  The selection of tenants will be made with due regard to the tenancy mix and the customer profiles that access the property.

It can take a leasing agent some years to fully understand the complexity of shopping centre performance and how tenants should be selected for a current or pending vacancy in the property.  The correct tenant selection will help boost the customer attraction of the property, and eventually the turnover or trade.

So what would you expect a retail leasing specialist to know or bring to you and your agency?  Here are some tips to help you:

  • Rents will vary from property to property.  This change requires knowledge and experience when it comes to gross and net rents, together with the incentives that are available to lease premises to new retail tenants in your local area.
  • Lease types together with the terms and conditions for a particular tenant will require negotiation based on the local leasing laws relating to retail property.  In many respects, retail leasing is more complex and the documentation behind the process is more rigid and
  • Tenant enquiry will change from location to location, however in retail property it is very much the case that the leasing agent has to get out into the business community and the other local shopping centres to talk to the existing tenants.  In this way they will find tenants that want to relocate, expand, or contract.  It is important to choose tenants that are at the top of their product or service offering.
  • New shopping centre projects and development timing will have impact on your current shopping centre and its future performance.  Always watch the supply and demand for retail space locally.  Any new leasing specialist should track these changes and the availability of retail space coming into the property market over the coming 2 years.
  • Property owners and new tenants that are looking for retail property are a unique breed unto themselves.  They require understanding and a leasing expert that can talk ‘retail’ from many different angles.
  • Franchise groups will require retail space to locate new businesses into.  That being said, franchises are a business model that has particular requirements of location and customer base.  It pays to have a leasing expert that understands how the franchises think and what they are looking for.
  • Outgoings costs will have a major impact on rental (gross and net) as well as a tenants occupancy costs.  Every retail property will have outgoings of a level that allows the property to operate efficiently and safely.  The important factor here is that the outgoings for a particular property should be of a level that is comparable to other properties locally of similar size and type.
  • Tenant mix and clustering are knowledge skills needed by a retail leasing expert.  When the tenant mix is correctly structured it builds a better market rental for the landlord and helps reduce the vacancy factor in the property.
  • Document knowledge and negotiation skills in retail property are quite unique when it comes to handling and working with small businesses.  A leasing expert should understand what variables can be used in a good lease negotiation for a shopping centre or retail property.

So, all of these things would indicate that a retail leasing expert is a special type of person.  Over time these skills can be learned; importantly the person chosen for the role has the right skill mix to take the role to the top of the industry locally.

Tenant Management Tips – Lease File and Record Keeping in Commercial Property Management

womand walking in shopping centre supermarket aisle
Understand all of your tenants leases totally, so you can stay on top of all critical dates and triggers.

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:

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

Retail Tenant Leasing Needs in Shopping Centres

woman shopping in fruit stall
Retail leasing is a key part of your tenant mix strategy.

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:

  1. 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?
  2. 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.
  3. 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.
  4. 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.
  5. 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.
  6. 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.
  7. 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.
  8. 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.
  9. 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.
  10. 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.
  11. 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.

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.

Lease Proposals in Retail Property Today

fruit and flower stand in a retail shopping centre
Lease proposals and letters of offer to lease, should be unique to the tenant type and the shopping center.

With commercial premises, the leasing process should involve ‘Agreements to Lease’ or ‘Letters of Offer’ between the tenant and the landlord. This enables you to negotiate the final terms and conditions of the lease quite effectively.

When the final ‘Agreement to Lease’ has been achieved between the parties, then that document can be sent to the landlord’s solicitor to prepare the final and original lease documentation. The whole process is clean and straightforward.

It is always desirable to let the landlord solicitor prepare the lease and arrange for the signature of both parties. Invariably solicitors come across smaller matters of dispute which still need to be resolved between the landlord and the tenant. The solicitors are the best ones to do that for the landlord.

Whilst all premises are unique and special, the following is a checklist around which the ‘Agreement to Lease’ could be structured. Simply then add other elements special to the property as appropriate.

  1. The name of the landlord together with contact detail
  2. The name of the tenant together with contact detail
  3. Description of the premises including the reference to any plans or drawings
  4. The area of the premises
  5. The term of lease
  6. The lease commencement date and the end date
  7. Option for a further term if applicable and how that option should be exercised with due regard to timeframes prior to lease expiry
  8. Details of contributions to outgoings expected from the tenant
  9. Details of recoverable outgoings that are normally considered as every day consumables in the premises and how they are to be recovered from the tenant. This would be cleaning, electricity, communications, and energy.
  10. Permitted use of the premises
  11. Details of any incentive to be provided by the landlord
  12. Details of the make good expected from the tenant at the end of the lease term
  13. Car parking detail
  14. Signage detail and approvals
  15. Air-conditioning supply and hours of operation
  16. Access details to the premises including a statement of how the tenant will access the premises at different times
  17. Details of works to be undertaken by the landlord prior to occupancy by the tenant
  18. Details of approval processes that need to be observed by the tenant in any fit-out works
  19. Rent review structure and frequency
  20. Details of the initial starting rental
  21. Details of the guarantees expected to be provided by the tenant as part of the agreement to occupancy
  22. Insurance obligations of the tenant
  23. Confidentiality agreement between the parties
  24. Any other obligations of the tenant to be undertaken during the lease term
  25. Any other obligations of the landlord to be undertaken during the lease term
  26. Special terms and conditions that need to be incorporated into the lease document by the solicitor prior to the signature an agreement of the parties
  27. Obligations of the lease with regard to legislation current in your location or the property type.

This list should not be regarded as finite given that every property is unique and special when it comes to lease negotiations. The list will however give you the main things to look for in the first instance of lease negotiation, and to which you can add the other special terms and conditions of the negotiation in the ‘Agreement to Lease’.

Any lease or tenancy negotiation should include evidence of the condition of the current premises before they are handed to the tenant. At the end of the lease term, you will then know to what condition you expect the premises to be returned to. ‘Agreements to Lease’ are standard procedures used by experienced landlords and real estate brokers.

When you have structured a document that works well for you in your location with your property types, it pays to create a number of templates which simplify the task of leasing and negotiating. Generally speaking, the ‘Agreement to Lease’ is not legally binding but it will facilitate the negotiation and move you towards the creation of a real lease where the solicitor takes over.

Location Based Retail Anchor Tenants

woman shopping for fruit in a shopping centre
Choose the best tenants to improve your tenant mix.

In larger retail properties today, you need a quality anchor tenant that is location based.  In saying that, they should be closely aligned to the local community and the demographics of the area.  For this reason, leasing managers and property managers should select anchor tenants well and ensure that the anchor tenants will build a customer base into the local area without difficulty.

A strong anchor tenant will encourage more shoppers to a retail property and consequently help the specialty tenants in the property with their trade and sales.  The link between the anchor tenant and the property is therefore high.

To help the anchor tenant with this close alliance with the property, consider the following factors:

  1. The anchor tenant should be encouraged to market their business into the local area.  It is wise to have some guidelines established for that process to occur.  The anchor tenant’s lease can set out some guidelines for that.
  2. The specialty tenants should join with the anchor tenant in a regular marketing effort to promote the property.  The specialty tenants can have a clause in their lease that requires them to pay a percentage of their rent to the marketing fund of the property.  The property manager should administer the marketing effort on behalf of the tenants and the landlord.
  3. The lease for the anchor tenant will need to be a lengthy period of time to give the property some stability over the long term.
  4. Look at how the access to the anchor tenancy is obtained by customers and how that access can incorporate involvement or profiling of the speciality tenants in the property.  Follow the ‘foot traffic’ to see what marketing effort can be established in the ‘corridor’ or pathway to the anchor tenant entry.
  5. The pylon sign on the property will be critical to the image and exposure for all tenants.  The anchor tenant will feature in the signage and then all specialty tenants should be on the same pylon sign.  Look at the pylon sign placement to passing vehicle traffic and pedestrians.
  6. If the local area is serviced by public transport, get some marketing material and posters into the transport systems and drop off points.
  7. Understand just how tenants access the property and how long they stay in the property.  What do they buy when they visit?  These questions will help you understand what the tenant mix requires to strengthen trade for the anchor tenant and the specialty tenants.
  8. Get marketing brochures into the local community and give special attention to seasonal sales or celebrations.  The community will get involved with your property if you create the right atmosphere.

There is a fine balance between the tenants in the property, the community, and the landlord.  The property manager or leasing manager for the property has to bring all of that together.