Better Ways to Lease Shops to Small Retailers

In a shopping center leasing program you are likely to be working with many smaller tenants, some of whom are likely to be a simple ‘family business’.  In saying that you should have some ‘checks and balances’ to fall back on to ensure that you totally understand the value and commitment the smaller tenants can bring to your property and tenant mix.

Negotiate your leases with these ‘mum and dad’ type family businesses only after you know that they really are skilled at what they do and that they are bringing real value to the property and the tenant mix.

In most shopping centers you need a good occupancy mix of the following:

  • Anchor tenants – any major retail property will have one or more anchor tenants to draw customers to the property and give it an image or recognisable brand.  Choose your anchor tenants with care based on the local community and the shifts that you can see in customer demographics in your town or city.  The lease for the anchor tenant will be quite special and lengthy.  Most large tenants of this type will commit to a 10 to 25 year lease with options.  In saying that, the tenant must have the right offerings for the property so that you can attract and grow your specialty tenants around that base.
  • Specialty tenants – these smaller tenants offer vitality and variety to the tenant mix.  You should look at zones in the property where tenant ‘clusters’ can be created.  The ‘clusters’ are specifically set to attract and encourage complementary sales between adjacent retailers.
  • Franchise tenants and brands – there are many franchise tenants to choose from.  Some will suit shopping centers better than others.  Most of the franchise groups will have a special lease that suits their operation and franchise agreement.  If that is the case the landlord’s property solicitor should look over the lease before it is signed and to check its suitability to the property.
  • Community involvement – look at your property layout and particularly the common areas in the mall and entrances to the property.  You can create a zone where local community groups can set up stalls and booths to promote their services and interact with the customers to your property.  You may charge a small rent for the casual lease or letting, but the main focus of the process is to get the community involved in your property.

So let’s go back to the ‘smaller tenant’ category.  That is where you are likely to strike and negotiate with the ‘mum and dad’ based smaller family businesses and tenants.  Here are some facts to look into:

  1. Business history and experience
  2. Identity of the business owners
  3. Product or service offering
  4. Involvement in other properties locally
  5. Permitted use for the lease
  6. Rental budgets and occupancy costs
  7. Fit out design and tenancy size for operation of the business
  8. Business plan
  9. Gross and net profit targets
  10. Facts about their customer base and its suitability to your property

If all of these things give you the comfort that the tenant is a ‘clear fit’ for the property, then look at where they can be placed into the tenant mix and existing tenant clusters.  As a general rule, try not to give options in any lease negotiation and particularly so with shopping centers; you never really know what you will want to do with the tenant mix down the track, and lease options can and usually will frustrate your leasing alternatives.

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