Lease and Tenant Management Tips in Shopping Center Renovations

As retail real estate managers and leasing specialists we can add considerable professional value to a shopping center renovation.  We can take to the project a deep and complex knowledge of desirable tenant mix changes, lease management and rental income opportunities.

So how can you as a real estate broker approach the retail property renovation process for your landlord clients?  Here are some of the main factors to get you started:

  1. Understand the landlord as a client and their property holding targets.  Do they want to hold the property for the long or short term?  That will have some impact on the scope of the project and the timeline of returns from rental and income growth.
  2. Review the tenant mix and the lease structures for changes and critical dates. Some leases will be coming to an end or lease option, whilst others will be due for rent review.  Understand the lease issues and assess the threats or opportunities that are presented from those facts.  Negotiate through any lease problems before they develop.  Remove the threats from the tenancy mix before renovations start.
  3. Some tenants in the mix will be critical to the performance of the property. Anchor tenants should be consulted as part of any property renovation program well before it starts.  The longer leases for those anchor tenants should be reviewed for any clauses that could relate to trade and access to the tenancy.  A renovation project should not impact the sales and trade for tenants if at all possible; any trade disruption could have legal implications back on the landlord, so get a solicitor to advice the landlord of those problems before they occur.
  4. When you have considered the anchor tenant impact, it is time to look at the smaller specialty tenants in the property.  Some of those tenants may be coming to the end of lease. The question to consider here is if you want the tenants to stay in the property through and as part of the renovation. To entice tenants to stay at end of lease you will require a market rental structure and lease offering that achieves ‘occupancy attraction’; lease incentives may be required for that together with longer lease terms and options for renewal.
  5. The function of a retail property will include operational costs or outgoings.  They should be assessed for parity to industry standards. Given that most lease structures include a rental relationship to outgoings, choose the right market rents for the renovation to be viable and realistic.

Have you ever come across a property renovation project that has not been carefully planned and costed?  Regrettably there are too many renovation projects that are commenced on inflated or overstated rental and property value returns.  Perhaps those costs were based on false market rental assumptions.

The message here is that all property renovations should be considered with complete regard for market trends and realistic market rental expectations.  The landlord should not move ahead without those facts.  That is how we can help our clients with specialist property management and leasing knowledge.

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