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.

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.

Leasing Handover of Premises to a New Tenant Today

shops in a shopping mall
Create a system of handover for moving a tenant into a new premises.

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.

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

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 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.

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.

Retail Property Tenancy Schedule

woman reading a file
Go through the tenancy schedule in great detail and check it against the leases.

The tenancy schedule is the tool of choice for a property manager or leasing manager in a commercial or retail property investment. It is the tenancy schedule that will keep the property manager up to task on forthcoming events and dates.

Often you find that the tenancy schedule is not up to date, so if anyone gives you such a document, treat it with the caution it deserves, and check it out completely before you act on the information contained therein.

So let’s say that you have a great tenancy schedule that you know is totally accurate. I get many questions about what I would want to see in a tenancy schedule. Here are my main priorities:

  • Details of the tenant name, lease, and full contact detail for emergencies
  • Tenancy identifier or suite reference that comes from the plan for the property
  • The area of the tenancy in m2 or ft2 (depending on your unit of measurement)
  • The % of the tenant area to the building net lettable area
  • The rent $’s per annum, per month, and per unit of measurement (m2 or ft2)
  • Lease start date
  • Rent start date
  • Lease end date
  • Term of lease
  • Option term of lease
  • Anniversary dates and reminders for rent reviews, options, expires, renewals, renovations, and make good obligations
  • Outgoings charges for each tenant on the basis of area and monthly charge
  • Outgoings budget for the building
  • Total outgoings recoveries for the property on a currency and % basis
  • Types of outgoings to be charged to the tenants
  • Insurance obligations of the tenant
  • Rental guarantee details or bonds held
  • Provision for critical dates relating to any important lease term or condition
  • Maintenance obligation details of the tenants

 

This list is not finite and you can add your own extra priorities, I would however make sure that it is totally correct and maintain it to the highest level of accuracy.

When you do this you can stay on top of important upcoming events that will impact the occupancy or rental of the property. Whilst you can buy ‘off the shelf’ software programs that display this above information, that can be quite expensive for those commercial and retail property managers that are first entering this type of property.

The alternative is to create some simple spread sheet that contains the data; in saying that, it is essential that great care is taken to maintain the spread sheet that you create. Any errors in the tenancy schedule can destroy your landlord, your business, your tenant, your reputation, and the property. Accuracy is paramount.