Decoding Retail Success: A Comprehensive Guide for Investors in Buying a Shopping Centre

Retail shopping centres are an attractive property investment class for the experienced property owner. I say ‘experienced’ because there are many variables and issues to watch and shape over time in a retail property to help with its performance.

What should be monitored? For starters, key strategies are deployed across the tenancy mix, lease documentation, rental factors, occupancy issues, and property expansion or change.

Also, consider the expenses and running costs. As a class of property, the operating expenses are ‘high’ given the daily involvement of all stakeholders in the property. The more successful the shopping centre, the greater the number of tenants and customers involved in the property each day.

Wear and tear and daily property maintenance become expense management issues. A budget is needed to stay on track with property presentation, maintenance, and capital works programmes. So, let’s look at things in greater detail.

Critical Retail Shopping Centre Issues

Let’s look at some critical issues that should be optimised and tracked for shopping centre ownership and investment.

1: Location Facts and Intelligence

Evaluate any retail property to see where it is and what it is. That assessment will include the customer base by type and change. Is the retail property in an area with known customer growth or stability? In answering that question, how could the customer interest change over the coming 5 years?

You can also assess foot traffic in the retail property now and during the ‘average week’. The tenants in a property will tell you a lot about sales, customer interest, and recent shopping trends.
Check out the competing retail properties in the local area to identify what differences could apply and why customers would prefer to shop at any local retail property. Look for the differences, as they will be there.

2: Economic Ecosystem

When you consider the retail property’s location and the town or city, how are things changing regarding retail spending? The local ‘economic health’ is something to define when considering or holding a retail property investment for some time.

Understand the consumer spending patterns and goods purchased. There are differences between food and convenience tenants, anchor tenants such as supermarkets, and service tenants for the community. Are there any growth areas or categories in those groups?

Compare your retail property to that of others nearby and determine what helps your property stand out as the ‘shopping centre of choice’ for customers. Factors of attraction in a shopping centre could be as simple as car parking, size of property, variation of the tenancy mix, security, safety, and anchor tenant selection.

3: Legal Landscape

A retail property, particularly a shopping centre, has legal issues and documentation. These need to be captured, interpreted, and optimised for the property’s daily operations.

Start with the property’s leases and any associated occupancy documentation. All documents should be assessed for accuracy, currency, and completeness. The lease format should support the property’s investment plans, so any strengths and/or weaknesses of occupancy documentation should be identified.

Check out the zoning for the property, given the local development plans and its current use.
As with anything legal, an experienced legal representative should be appointed to help with all legal matters and interpretation or documentation.

4: Financial Due Diligence

With all retail properties and shopping centres, there are things to look at and assess for investment potential and support. The categories would typically be:

A: Income Stream and Rentals:

This will be the property’s income stream for what it is now and how it could change given known events and local situations. Vacancy factors and leasing costs will affect the income stream.

B: Expenditure Breakdowns:

A property’s expenditures can be divided into statutory rates and taxes, maintenance works, and capital works. Given the size of the property, it is wise to have a budget set for each category.
Financial Risk Assessments: The tenancy mix, vacancy factors, and retail sales could impact these. Look for any pressure points in these categories.

C: Lease Agreements and Occupancy Documents:

Understand the lease agreements currently in place with the existing tenant mix and check that the existing lease documents contain and control all occupancy issues. Each lease document for each occupant can be different in key factors, thereby impacting the retail property and its performance. Always read through the lease documents or have someone of legal background do that.

D: Adapting Property to Retail Changes:

Expect customer interest in the property to change throughout the year for reasons you cannot control. The internet is one of those change factors that is affecting retail properties today. It should be said that retail property and shopping trends will always be there, but things will change. Retail property owners, landlords, and centre managers must be focused on those changes and bring about strategies to attract customers and boost retail tenant trade.

Retail Shopping Centre Decisions

With all retail properties and shopping centres, there are things to look at and improve. Some things can go wrong, so an investment business plan and a supporting property management system are wise.