Without a doubt shopping centres are the most intense type of investment property to own, lease, and operate. There are many issues to watch including presentation, occupancy, sales, wear and tear, and customer numbers. Overall property performance is to be encouraged at all times.
A successful shopping centre will generate real benefits for tenants, the landlord, and the customers. Renovations are however regularly required, but those renovations can throw property performance out of balance.
As a shopping centre ages, renovation programs and strategies are commonly inserted each year into the performance plan for the asset. Parts of a shopping centre can usually be selectively upgraded in an ongoing way whilst the surrounding tenants get on with their business in generating sales; ultimately this means that the customers can still satisfy their shopping needs. So a property upgrade is a balance to be managed and some real strategy is required.
Why do this?
So the renovation process is important in any retail property, and yet it cannot be undertaken without some real planning and timing. There are too many issues at play for all the stakeholders. One small error in a renovation program can mean loss of rent, higher vacancy factors, and unhappy tenants and landlords. When you lose your customers to another retail property, it can take months or even years to get them to come back to you.
Know the retail facts
Here are some factors to help you get started in establishing a renovation plan or upgrade strategy to improve a retail shopping centre. You can merge these issues into your business plan for the asset and the planning process as you move towards the staging of works:
- Define goals – Don’t start anything without defining exactly what you are trying to achieve. Look at the property and the challenges that you are endeavouring to resolve. Be specific. Understand what you want to achieve and how the works should be timed into property performance, the tenant mix, the calendar year, and the marketing plan.
- List essential changes – Review the real facts, services, and presentational issues that must occur; some will be major, others will be minor. You may need specialist contractor(s) comment to help you consider all elements here and how they will impact the property. Create an impact statement of the overall situation and take into account occupancy, the tenants, rent, and the customers.
- Set your budget for the works – Given the previous points, you must fund the renovation project so look at the available funds, retail sentiment, market conditions, the sources of funding, and the impact on rents and occupancy in the property. Be realistic (not optimistic) in your assumptions.
- Determine the best time for the project – When you look at the customer sales patterns, and occupancy levels for the property, there will only be small windows of time to get the works started and finished. So you may need to work around upcoming vacancies, lease terms, and tenant movement. Review all your leases as part of understanding those things.
- What will be the ultimate benefit? – Some landlords undertake renovation programs to achieve a better level of occupancy and ultimately a higher level of rental in the property. This is where things get a bit uncertain especially if the landlord is overly aggressive in their assumptions about new levels of rent. Ultimately retail tenants must be (and remain) successful in running their respective businesses. Higher rents will mean higher occupancy costs; those occupancy costs can only happen if customer numbers and sales turnover figures are achieved. Don’t proceed into with your retail upgrade project if any doubts exist about what can and should be achieved in the property from all aspects of occupancy and rental.
So there are some basic facts to understand here when it comes to property control and performance in any retail shopping centre upgrade. Be very careful as you plan your requirements and set about timing the works into your retail property. Understand the factors that can impact all the stakeholders.