Anchor Tenants Leasing Strategies in Retail Shopping Centers

Anchor tenants provide real benefits to a retail property.  The fact of the matter is that the choice of a retail tenant is likely to make or break the overall performance of retail properties.

When you own, lease, or manage a shopping centre or large retail property with an anchor tenant, it is imperative that you watch the interaction between the specialty tenants and the anchor tenant. 

The relationship between the tenant types will help the property reach its ideal retail customer profile and tenant mix.  If the anchor is under pressure, it is likely to flow into the entire property.

Specialty Tenant Integration with Anchor Tenants

Specialty tenants can feed off the anchor if the clustering and tenant mix are correctly handled.  Split up your tenant mix into merchandise groups, franchise brands, locations, and priority tenants. You will soon see and make decisions regarding the better tenants and those that you really do not need for the longer term. The tenant retention and replacement plan takes shape from that.

Putting these well-chosen smaller tenants outside the entrance to the more prominent anchor will help with the property’s vibrancy. Attracting sales and customers is really what it is all about when it comes to shopping centre performance and leasing. Your anchor tenants are a big part of that process.

Anchor Tenant Questions

When leasing premises to anchor tenants, the lease structure is unique for both the property and the occupancy. Here are some ideas for negotiating the retail shop lease with these tenants.

1: Long Lease Term Planning

Choose a long lease term that gives stability to the property. In these cases, the lease term is usually 10 or 20 years. The rent review provisions of the anchor tenant lease will be defined and set from the lease negotiation. Different rent review methods can apply, so make the right choices for property investment performance and occupancy stability. You could consider turnover rents, fixed percentages, fixed amounts, or some indexing processes concerning the movement in the consumer price index. Make the right rent review choices that suit the property, the landlord, the tenant, and the customer sales projections. Ensure that the rental growth plan gives all parties the future of occupancy required.

2: Customer Attraction and Marketiing

What can the anchor tenant bring to you and the property by way of customer attraction? Question their marketing plan and efforts to ensure that they are committed to promoting their business in the shopping tenant mix.

3: Sales Figures and Projections

What sales figures do they expect and need from the property and customer base to ensure growth of their business? Are they going to share monthly sales figures with you?

4: Customer Base and Demographic

What is the main customer demographic they serve and how does that compare to the customer growth patterns in the region? Will that customer demographic continue to be drawn to your property, and how can you compete as a shopping centre against the other retail properties nearby with their anchor tenants? In other words, what is your point of difference as a shopping centre, and how can you preserve and encourage that?

5: Competing Properties and Anchor Tenants

What competitors does your anchor tenant(s) have in the region and how does that impact their occupancy and marketing plans? Check out all the competing properties nearby and the relative tenant mixes. Are there things that you can learn from those other properties? Are there tenants that could move from those properties to your property if you made the leasing deal attractive?

6: Renovation Clauses

Given that an anchor tenant will be in your property longer than the standard tenant, ensure that the lease has a renovation clause allowing the tenant to undertake internal tenancy upgrades every 5-8 years.

7: Make Good Strategies and Requirements

At the end of the lease, a makegood clause will apply, requiring the tenant to complete the works. Given that most anchor tenants are large in occupancy and configuration, ensure that the make good provisions are well defined and realistic. You don’t want the landlord left with fitout works when the anchor tenant leaves.

8: Lease Renewal Planning

The lease renewal option for any anchor tenant should be 12 months to 24 months from the end of the initial lease term. This will give the landlord time to find a replacement if necessary. Referring back to your tenant retention and replacement plan, all your tenants should be tracked when it comes to leasing critical dates, occupancy choices, and lease changes. Lease renewal planning is important to the property’s future.

9: Sale of Goods – Exclusivity or Permitted Use

The property or tenancy use should be suitably broad to allow the anchor to sell goods and services comprehensively inside its branding. Use the anchor tenant as a customer leverage and attraction point for the entire property. Should the anchor tenant be given some exclusivity for certain goods and classes of merchandise? Is it better to provide them with a ‘permitted use’ provision?

10: Signage Standards and Costs – Upkeep and placement

Special signage treatment will be needed for all tenants on the property and the anchor tenant. Establish standards for signage that can be applied in all locations, such as pylons, bulkheads, frontages, roofs, and malls.

11: Fitout Design and Requirements

Consider the internal shop layouts for the anchor tenant, the entranceways, hours of operation, air conditioning and power requirements, lighting, security, fire and safety, and the movement of people that could impact lifts, escalators, doorways, and emergency issues.

12: Permitted Use for Occupancy Stability

Get the permitted use clearly defined for all tenant premises across the property.  This will prevent conflict in sale of goods etc.  Do not give exclusivity to any one tenant unless there is no other alternative.  When defining permitted use it is better to be specific given that a midterm lease assignment may change tenant in occupancy, and you would not want a change to destabilise the property or the tenant mix in any way.

13: Tenant mix Positioning and Tenant Retention Plan

Mix the locations of ‘destination’ tenants into the groups of ‘specialties’. This will attract more people to and around the property. How are your specialty tenants positioned to get the best benefit from ‘foot traffic’ and the anchor tenants?

Create a tenant retention plan across your shopping centre and as part of that, consider the full occupancy issues, dates, offerings, tenant placements, and income potential. Bring into that the renovation plans in the property over the next 5 to 10 years.

14: Retail Sales Figures

It pays to get monthly sales figures from all the tenants in a retail property as well as the anchor tenant.  The figures can be kept confidentially for collation into shop groupings.  The shifts in retail shop sales figures will tell you if the property customer base is changing or sales are declining for any single tenant or tenant segment.  The lease for the property will need to support the sales figure collation process.

15: Anchor Tenant Meetings and Progress Reports

Sit down in a formal meeting with your anchor tenants each month. Keep notes and minutes of active issues and future plans from the meeting. Ensure that the anchor tenant is part of your tenant retention plan and property positioning statement.

16: Speciality Tenant Meetings and Progress Reports

Meet with all specialty tenants at lease once every two months and stay well ahead of critical lease dates and changes, such as options, expiry dates, rent reviews, renovation matters, insurance updates, and all other occupancy-impacting issues.

A successful retail property is usually the result of lease planning, tenancy management, and a balance between the tenant groups of specialty, destination, anchor, and service. 

Plan your retail property well and update the mix of all tenants yearly as part of the property’s business plan. A successful retail property is well-planned and shaped for the longer term.