7 Laws of Attraction in Retail Shopping Center Leasing

The retail shopping center market is quite unique when it comes to leasing and tenant mix strategies.  It takes a larger degree of understanding than that of office or industrial property; it also requires a high degree of specialisation on the agent’s part.

So what’s different about retail leasing and shopping center operations?  What are the laws of attraction for this property type?  Here are a few things to get started:

• Rental strategies – The rents in a shopping center are considerably higher than other asset classes (office and industrial).  On that basis the rents can be very volatile if the property is poorly marketed or under maintained.  If you lose customers to a shopping centre, the market rents quickly start to fall and the vacancy factors lift.  Understand the different rental strategies for net, gross, face and effective rents.  Monitor the market rents active today.
• Rental payment – Some tenants can pay more per unit of area than others.  Their business type supports greater cash flow and different profit ratios from gross sales.  If you are going to lease retail shopping centers, it is important to understand those tenants that are ‘cash and customer generators’ for the property.
• Tenant selection – The choice of a tenant for a vacancy in a shopping center is a special process.  You are looking for a tenant that is a proven performer and that can bring more customers to the property.  In addition to that you are looking for a tenant that balances the mix and the particular cluster of tenants in the segment of the property around the vacancy.
• Tenant mix – The tenant mix should be well considered for every property today.  Monitor vacancy potential, rent reviews, market rents, options, and space needs.  Some tenants will want to expand or contract in the property.  Others will make more sales from a different location.  The tenant mix in a retail property is generally quite active; you should have a business plan and a tenant retention plan to work with the variables of tenant placement and change.
• Operating costs – The activity factors and the tenant mix in a shopping center drive higher operating costs (also known as outgoings).  The greater the number of tenants that you have, the greater the number of customers visiting the property every day, and the higher the ‘wear and tear’ factors in maintaining the property.  On that basis you really do need to know about operating costs, and have a budget to control them.  The net income for the property will be a careful balance of gross rental income, operating costs, and property maintenance.  Landlords, customers, tenants, and property financiers all have a role to play in the success of a retail shopping center.
• Marketing – A good retail property will be well marketed.  In most cases there will be a marketing budget to draw customers to the property across the retail sales seasons.  Tenants will usually pay a contribution towards the marketing program, and a larger shopping center will integrate the marketing process into the business plan for the property.
• Customers – The customer experience in a retail property will ‘make or break’ ongoing property success.  Every customer visiting the property or any specific tenancy should be encouraged to return and buy more goods or services in an ongoing way.  To achieve that ‘repeat sales’ cycle, all levels of customer interaction should be optimised in the shopping center including, common areas, car parking, signage, safety, lighting, seating, roads, public transport, and access.  To help control and identify any weaknesses with these things, it pays to survey your customers and tenants in the property at least twice a year.

So these factors of attraction in a retail property are easy to understand.  The larger the shopping center, the more complex the control factors behind the issues.  You will need a good business plan to help you in retail property performance and control.