The concepts of leasing and property management within a shopping centre environment are quite special. The concepts are totally different to the ordinary rules and the strategies that apply to office and industrial property types. If this is your part of the industry from a career perspective, then you should focus on being an expert in retail leasing in every way possible. (NB – you can get our free commercial and retail real estate training here)
A shopping centre is a business environment with many tenants in occupancy. The retail shopping environment needs to thrive so that the tenants can be successful. Successful tenants create more sales which in turn can reflect in the improved investment performance of the property. That then supports the investment plans of the landlord. It is a special equation to optimize.
As many of the retail centre managers and leasing experts will know, the retail side of our industry requires substantial knowledge and leasing specialization. Many critical factors come together when it is necessary to place a tenant into a vacancy or in a part of a shopping centre environment. The wrong tenant will produce difficult results, and can potentially destabilize the tenant mix, the investment, or the asset performance. A well selected tenant will on the other hand improve the overall tenancy mix and the interests of customers and the stakeholders in a property.
Shopping Center Factors to Watch
So here are some special ideas to consider and remember as part of shopping centre performance and leasing optimization.
- Retail customer sentiment will shift and change throughout the year. Those factors of change will be influenced by the local economy, the customer base, and the retail offering.
- Some tenants are better than others. If you are already working with a tenancy mix, then take the time to review the tenancy mix and the sales by tenant type and by tenant. Look for the weaknesses and look for the strengths as you proceed through that analysis. Some tenants can be shaped and encouraged to improve their trade. Other tenants will simply struggle because they are not a clear match for the customer type and or the property. The poor quality tenants will need to be moved from the property when the lease or the occupancy circumstances arise.
- The landlords involved in owning a retail asset should be fully briefed and up to date on existing and prevailing retail market conditions and the plans of shopping centre optimization.
- With every good quality shopping centre there should be a business plan agreed to and set prior to the beginning of each financial year; that business plan should be set so that the leasing manager, marketing manager, tenants, centre manager and landlord can all work to a common plan and goal for the retail property as an investment. It is a broad and complex formula of retail property performance to work through.
Retail Leasing Plan
Here are some ideas and targets to help you establish a strategic plan for a shopping centre encompassing both leasing and management activities:
- Optimising trade – at the earliest stages of property involvement review the shopping centre for current levels of trade. From that analysis you can look at the different ways you can improve sales and trade over time.
- Tenant mix analysis – there are many different tenant types that may suit your property and or any vacancy. Choose the right tenants based on the business plan and the investment targets for the property.
- Competitive analysis – review the other retail properties in the area and those that may have an impact on your customer interest and retail sales. In looking at those other properties, understand their tenancy mix, vacancy factors, market rental, and property size.
- Attracting customers – you will need a plan to attract customers to your property in a regular and ongoing way. Develop a marketing plan for that process taking into account the seasonal celebrations and local customer base.
- Minimizing vacancies – review all of your leases currently to understand how and when any vacancies may be arising. Some of those vacancies can be resolved through a fresh lease negotiation. With any known vacancies, develop a strategy of marketing and tenancy placement. Look for the right tenants to suit the vacancy and market the vacancy accordingly in a targeted way.
- Improving market rentals – some market rentals can be improved over time. If the retail economy is struggling in some respect, then you will need to stabilize your market rentals and maintain occupancy in the immediate sense. Protect your tenancy profile and protect your market rentals. Negotiate every lease and every vacancy with a focus on rental stability.
- Improving investment performance – every landlord will have a specific plan relating to investment performance. Understand that plan and how it may impact tenant selection and lease negotiations. Make your tenant choices based on the investment targets of the landlord.
- Renovation and relocation – most shopping centre owners prefer not to give lease options as part of any lease negotiation. The leases that they negotiate are for singular lease terms. In that way the landlords can negotiate a fresh lease at a time in the future when the shopping centre market and the performance of the property may be special and different. At that time, the current market conditions can be allowed for as part of the retail shop lease renegotiation.
- Hours of operation – in optimizing the tenancy mix, the shopping centre should be open during defined hours to suit the customer base, the retail shopping requirement, and the local shopping regulations. The lease that you negotiate and create for the property should optimize the tenancy mix for trading during the peak retail times.
- Permitted use – make the right choices when it comes to retail tenancy placement, the permitted use, or exclusivity. Some tenants will want to optimize their trading position as the only tenant selling a particular stream of merchandise. Exclusivity of retail offering is a difficult thing to allow in any shopping centre today, yet some tenants will request that factor as part of a lease negotiation. Exclusivity can restrict the ways in which the property can be optimized over time. Most landlords would prefer to avoid giving any tenant exclusivity as part of a retail shop lease. Be prepared to avoid the ‘exclusivity’ request from a retail tenant.
- Advertising and marketing – every good quality retail shopping centre should have a marketing plan that is optimized to the tenancy mix, the customer base, and the seasonal sales for the region. The marketing plan can then be tracked and monitored given the levels of sales achieved by tenants across the property.
- Tenant involvement – whilst each and every tenant can be regarded as a separate and unique business, the tenants in a shopping centre should be encouraged to interact with each other to support and underpinned the retail profile for the property. In other words, attract more sales in a gross way. The shopping centre manager and the marketing manager for the property can also assist greatly when it comes to encouraging the tenants to interact in a positive way.
So there are plenty of things here to structure into the performance of a retail shopping centre. They are distinct and definite strategies to be optimized over time. The shopping centre manager and the leasing manager will all be part of the process to improve the property and its investment targets for both the landlord and the tenants.