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.
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.
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.
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.
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.
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.
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.
In a retail property today, the tenant mix is likely to be the ‘make or break’ factor in property performance. A good tenant mix will help the property thrive and underpin the rentals for the property and the landlord.
So how can you get to know what works? It is easy to see examples of tenant mix profiles in other properties and then compare them to your property. Look for the situations that work and those that do not.
Clustering is one factor worth examining in other properties to see how they may handle the cluster concepts. Whilst you are there, look at their vacancy factors and just how they work with them.
Competing properties will also have factors of tenant loss and relocation; that is a good source of new tenants for your property.
Here are some other tips that can help you in your tenant mix design and property business plan.
Understand the local demographic of customers before you do anything else. Are there changes in the local area that will impact the customer base now or in the next couple of years? If so the factors will need to be in your business plan for the property. The business plan should be done every 12 months and reviewed quarterly.
Undertake a customer survey in your property and in the surrounding area. You will learn so many key things from that process. Why do people shop in your property? What would they like to see changed and why? How often do people come to your property and on what days?
Check out the existing competing properties in the local area. In this way you will see the differences that their customers see. Pay particular attention to the access and convenience factors with those properties before you look at the tenant mix internally. If there is one thing that frustrates many shoppers it is access and convenience. Can your retail property improve on anything that the other properties are struggling with?
The maintenance of your property will be driven by property layout, customer visits, and building age. Retail property is one of the most costly property types to maintain. That is why outgoings in retail are so high.
The anchor tenant or tenants in your property are likely to be established on a long lease(s) with appropriate rent reviews. The anchor tenant profile will help you lease the specialty tenant premises in the property. Create sound relations with your anchor tenants so the customer targets that they have integrate to the overall marketing plan for the property overall and the general tenant mix.
A great retail property performance is a constantly moving target. Over time you will be modifying your plans and strategies when new things are seen or the local area changes. Get involved with the local retail businesses and shopping community; you will soon know what they are looking for.
When you lease a retail property or shopping centre, understanding the retail tenant’s needs will help you significantly when you try to close a deal or lease. Retail tenants are quite special when it comes to occupancy; you need to know a lot more about them that the average office or industrial tenant.
Here are some ideas to help you work with retail tenants and fill vacant tenancies in your property:
They will have an ideal shopper demographic for their goods and services. What or who is that shopper and do you have plenty of them in your local area? Is that demographic changing in any way?
You may find that the retail tenancy is part of a franchise group structure. That can be a good thing because the tenant coming into the premises will have an established business plan and retail support.
What shop size will the retailer require? Will that shop need to be on a corner point, internal to the shopping centre, or on a higher foot traffic zone? Some retailers have to be in particular areas to make their expected sales. That being said, a successful retailer will bring other shoppers to the area and help boost sales for tenancies nearby.
What improvements will the tenant require in the shop? Some of those improvements could be a landlord expense to get the tenant to commit to a lease.
Visit some other shopping centres in the local area so you can understand just how successful some tenants and brands are in trading and in established tenancy mixes. Look for the synergies between tenant types and locations.
Each established and experienced retailer is likely to have a series of lease requirements that they will negotiate with the landlord for each property. Some of those terms and conditions will be non-negotiable as they have an impact on the way the tenant does its business. Get a copy of the standard lease conditions that the retailer believes are critical to their business.
The common areas within a retail property may add to the sale potential for some tenants. A food court is a good example of this synergy and need. Visit some other food courts or similar areas and understand what works and why. If a customer can spend more enjoyable time in a property, they will likely spend more money.
Presentational factors in a retail property are more important than in any other property type. Retailers know when the landlord is cutting corners on maintenance to save some money. Eventually the poor property presentation will impact the customers and shoppers coming to the property.
Transport corridors and roadways will have an impact on the way people get to a retail property. If the process of access is too hard, the shopping centre can lose trade fast.
Public transport to or near your property will be a great advantage. How do people get to your property now and is it efficient? Be aware of intended changes to roadways and highways; one small roadway change can impact your property in a big way.
Car parking is always important to retail trade and shopping centre success. In some locations that car parking should be under cover and convenient. How big is your car park and is it convenient for users or shoppers to the property?
As mentioned earlier, and as you can see from the information above, the retail property and shopping centre is a really special property in function and operation. Lease the property carefully and get to know all the retail tenants very well.
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.
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.
When assessing retail property tenancy mix, it is necessary to understand the financial factors that the property creates. In doing this, it is not only the financial factors today that you need to look at, but also those that have formulated the history of the property over recent time. In this case, the definition of ‘recent time’ is the last three or five years.
It is surprising how property owners try to manipulate the building income and expenditure at the time of sale; they cannot however easily change the property history and this is where you can uncover many property secrets. Once the history and current performance of the property is fully understood, you can then relate to the accuracy of the current operating costs budget.
All investment property should operate to a budget which is administered monthly and monitored quarterly. The quarterly monitoring process allows for adjustments to the budget when unusual items of income and expenditure are evident. There is no point continuing with the property budget which is increasingly out of balance to the actual property performance.
Fund managers in complex properties would normally undertake budget adjustment on a quarterly basis. The same principle can and should apply to private investors.
So let’s now look at the main issues of financial analysis on which you can focus in your property tenancy mix evaluation:
A tenancy schedule should be sourced for the property and checked totally. What you are looking for here is an accurate summary of the current lease occupancy and rentals paid. It is interesting to note that tenancy schedules are notoriously incorrect and not up to date in many instances. This is a common industry problem stemming from the lack of diligence on the part of the property owner or the property manager to maintain the tenancy schedule records. For this very reason, the accuracy of the tenancy schedule at time of property sale needs to be carefully checked against the original documentation.
Property documentation reflecting on all types of occupancy should be sourced. This documentation is typically leases, occupancy licences, and side agreements with the tenants. You should expect that some of this documentation will not be registered on the property title. Solicitors are quite familiar with the chasing down all property documentation and will know the correct questions to ask of the previous property owner. When in doubt, do an extensive due diligence process with your solicitor prior to any settlement being completed.
The rental guarantees and bonds of all lease documentation should be sourced and documented. These matters protect the landlord at the time of default on the part of the tenant. They should pass through to the new property owner at the time of property settlement. How this is achieved will be subject to the type of rental guarantee or bond and it may even mean that the guarantee needs to be reissued at the time of sale and settlement to a new property owner. Solicitors for the new property owner(s) will normally check this and offer methods of solution at the time of sale. Importantly, rental guarantee and bonds must be legally collectable by the new property owner under the terms of any existing lease documentation.
Understanding the type of rental charged across the property is essential to property performance. In a single property with multiple tenants it is common for a variety of rentals to be charged across the different leases. This means that net and gross leases can be evident in the same property and have different impact on the outgoings position for the landlord. The only way to fully appreciate and analyse the complete rental situation is to read all leases in detail.
Looking for outstanding charges over the property should be the next part of your analysis. These charges would normally stem from the local council and their rating processes. It could be that special charges have been raised on the property as a Special Levy for the precinct.
Understanding the outgoings charges for the properties in the local area is critical to your own property analysis. What you should do here is compare the outgoings averages for similar properties locally to the subject property in which you are involved. There needs to be parity or similarity between the particular properties in the same category. If any property has significantly higher outgoings for any reason, then that reason has to be identified before any sale process or a property adjustment is considered. Property buyers do not want to purchase something that is a financial burden above the industry outgoings averages.
The depreciation schedule for the property should be maintained annually so that its advantage can be integrated into any property sales strategy when the time comes. The depreciation that is available for the property allows the income to be reduced and hence less tax paid by the landlord. It is normal for the accountant for the property owner to compile the depreciation schedule annually at tax time.
The rates and taxes paid on the property need to be identified and understood. They are closely geared to the property valuation undertaken by the local council. The timing of the council valuation is usually every two or three years and will have significant impact on the rates and taxes that are paid in that valuation year. Property owners should expect reasonable rating escalations in the years where a property valuation is to be undertaken. It pays to check when the next property valuation in the region is to be undertaken by the local council.
The survey assessment of the site and tenancy areas in the property should be checked or undertaken. It is common for discrepancies to be found in this process. You should also be looking for surplus space in the building common area which can be reverted to tenancy space in any new tenancy initiative. This surplus space becomes a strategic advantage when you refurbish or expand the property.
In analysing the historic cash flow, you should look for any impact that arises from rental reduction incentives, and vacancies. It is quite common for rental reduction to occur at the start of the tenancy lease as a rental incentive. When you find this, the documentation that supports the incentive should be sourced and reviewed for accuracy and ongoing impact to the cash flow. You do not want to purchase a property only to find your cash flow reduces annually due to an existing incentive agreement. If these incentive agreements exist, it is desirable to get the existing property owner to discharge or adjust the impact of the incentive at the time of property settlement. In other words, existing property owner should compensate the new property owner for the discomfort that the incentive creates in the future of the property.
The current rentals in the property should be compared to the market rentals in the area. It can be that the property rent is out of balance to the market rentals in the region. If this is the case it pays to understand what impact this will create in leasing any new vacant areas that arise, and also in negotiating new leases with existing tenants.
The threat of market rental falling at time of rent review can be a real problem in this slower market. If the property has upcoming market rent review provisions, then the leases need to be checked to identify if the rental can fall at that market review time. Sometimes the lease has special terms that can prevent the rent going down even if the surrounding rent has done that. We call these clauses ‘ratchet clauses’, inferring that the ‘ratchet’ process stops lower market rents happening. Be careful here though in that some retail and other property legislation can prevent the use or implementation of the ‘ratchet clause’. If in doubt see a good property solicitor.
So these are some of the critical financial elements to look at when assessing a tenancy mix. Take time to analyse both the income and expenditure in the property before you making any final choices regards tenant strategy.
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:
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.
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.
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.
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.
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.
If the local area is serviced by public transport, get some marketing material and posters into the transport systems and drop off points.
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.
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.