I like working with retail shopping centers in leasing and tenant mix optimization. It is an interesting and vibrant property type. There are so many things that you can do and shape that will have a great impact on the future of a retail property both financially and physically. Some agents focus only on retail and rightly so; it takes a lot of knowledge and skill to shape a large shopping centre into peak financial performance.
It should be said that the retail segment of the investment property market is quite special and to a large degree ‘stand-alone’ when it comes to property performance; some agents just don’t ‘get it’ and struggle to provide high level retail property support.
There are different factors at play that can impact retail trade, occupancy and investment performance. Is this your market segment? If so, your focus is to watch what is happening and then help the owners and clients of a retail property to make adjustments where things can be improved. Knowledge and market information is critical to make things happen correctly and positively.
So let’s say that this is a segment of the market that you are attracted to. You can learn a lot about market trends by inspecting other retail properties in your town or city. Look at a variety of properties so you can see the ‘good and bad’ factors that have an impact. Identify the strengths and weaknesses that change property performance. Take pictures and make notes as you review those other properties.
Review Competing Properties
When I visit a retail property and particularly those of the ‘competition’ I gauge factors and pressures in each of the following categories:
- Changes in the tenant mix – Look for situations where tenants are being relocated or new tenants are entering the property. Determine if the change in mix has a positive outcome or benefit to the property.
- High traffic and exposure points – Some entrance ways and mall corners are valuable from a retail perspective. Assess the common area for priority points where retail sales can be optimised.
- Common area use – In larger shopping centers, the common areas offer lots of chances to bring shoppers to the property and extend their shopping intentions.
- Market rentals – It is always good to know about the levels of current market rental. You will need to differentiate between gross and net rents, as well as face and effective rents.
- Third income streams – Some retail properties deliberately improve rental opportunities by the use of ‘third income streams’. That income logic can apply to short term occupancy, storage rents, booths, car parking, signage, plus anything else that is of value from a lease perspective.
- Levels of vacancy – High vacancy factors create problems. A good retail property will generally have a tenant retention plan and leasing strategy to minimise vacancy pressures.
- How they use the clusters – Clusters of tenants within a shopping center create extended sales opportunities. In a large shopping center there can be quite a few clusters across the property to encourage shoppers and customers to stay longer and buy retail goods.
- Customer profile – What is the typical customer profile for a retail property? When you understand that fact you can build the tenant mix to suit shopping needs and patterns.
- Anchor tenants – The leases for anchor tenants are longer and quite specific as to occupancy participation. You need stability in anchor tenant occupation to strengthen your specialty retailers. Look to see how the specialty tenants are clustered around the entrances to anchor tenant doorways and mall thoroughfares.
So there are many good things that you can look at and study when reviewing other local retail properties. Learn from the strengths and weaknesses in other shopping centers locally.