Laws of Attraction in Retail Shopping Center Leasing

Retail shopping centre leasing is a specialised field that requires a deep understanding of tenant mix, customer behaviour, and property dynamics. An experienced shopping centre manager or leasing expert can add considerable strategy and value in this area.

Unlike office or industrial properties, retail spaces rely heavily on foot traffic, customer engagement, and strategic tenant placement to maximise performance and rental returns. So the question is always, ‘How can I create a tenant mix that attracts and satisfies customers?’

Before going further, the retail shopping centre environment is changing in most locations. The Internet significantly impacts how customers look for products and services in retail. Indeed, the retail shopping centre experience will never disappear, but local customer interests and shopping requirements will shape the tenancy mix associated with any shopping centre.

Retail Property Today and Messages Learnt from History

So, what makes retail leasing different in your location and with the properties you work with? To answer that question, look at the history of the location, the customer demographics, and the growth or changes in population and the local area.

Also consider the key laws of attraction for shopping centres. What types of shops and tenants draw customers and shoppers to a shopping centre? The list is constantly changing; hence, you must match your property and the leasing plans or requirements to your community.

Let’s create a list of ideas. Below are critical factors to consider in shopping centre leasing and management today. You can build your retail business plan around these strategies and ideas.

1: Rental Strategies

Retail rents are typically higher than those of office and industrial properties due to the revenue potential of retail spaces. However, these rents can be volatile if the shopping centre is not properly managed or marketed.

The quality of people working within and leasing a retail property is quite essential to enhance the overall investment performance outcome. Its a long-term equation.

Lets look at the ‘big picture’ of retail today and how it could apply to your property or shopping centre. Here’s what to consider:

• Market positioning: A well-located and well-maintained shopping centre can command higher rents. Consider the roadway positioning, highways, traffic lights and customer access points. What do people see when driving past or entering your retail property? The ease of access and the ‘visual’ elements of your retail property must be good and well-maintained.
• Vacancy impact: High vacancy rates or loss of anchor tenants can reduce foot traffic, lowering rents. It is a fact that vacancy rates will shift and change throughout the year. How you work with that is a strategic issue that is planned and implemented from the property’s business plan, which is set before the start of the financial year. You can also establish a tenant retention plan that is reviewed annually and updated to the tenant movements monthly.
• Customer flow: A steady stream of shoppers supports substantial rental income, while poor customer retention can lead to declining rents. So the question is then, ‘How can you get customers coming back to your retail property with their shopping requirements, and as part of that, how can you make that easy for them?’ The customer experience is a big part of a thriving shopping centre today. Apply a strategic marketing plan for the shopping centre to boost customer awareness and involvement in the property.

2: Rental Payment Structures

Some tenants can afford to pay more per square meter due to their business model, customer draw, and sales volume. Understanding this balance is key to maintaining a profitable mix of tenants. Key factors include:

• Percentage rent models: Many retailers pay rent based on a percentage of their sales, aligning their success with the property’s performance. This strategy is also more common in newer shopping centres where tenant sales and customer numbers are growing.
• Cash and customer-generators: High-performing tenants like supermarkets and entertainment venues drive traffic and justify higher rent levels. When you do a tenant mix analysis or tenant retention plan, categorise your tenants between ‘anchors’ and ‘specialties’ and then group them into importance such as ‘A’ strategically important, ‘B’ Good tenants, and ‘C’ marginal tenants that are not important to the property. You can also have a tenant group ‘D’, which would be the tenant types that are needed but not in the existing mix and include in that group the existing tenants that need to be moved for whatever reason.

3: Tenant Selection and Placement

The success of a retail property depends on strategic tenant placement. Selecting the right tenants for a shopping centre vacancy is crucial for ensuring a vibrant and profitable environment:

• Proven performers: Tenants with a strong track record of retail success should be prioritised. They are your ‘A’ class tenants. Some will be branded retailers, others will be franchise groups, and the remaining will be tenants that consistently draw in customers for their unique retail offering.
• Customer synergy: A tenant should complement surrounding businesses and contribute to the overall customer experience. To this end, you can create a strategic ‘clustering’ plan to get complementary or similar tenants into zones of the shopping centre. This makes it easy for customers to move from shop to shop and purchase goods.
• Anchor tenants: Large retailers or supermarkets can serve as key traffic drivers, supporting smaller speciality stores. So your anchor tenants will have longer leases and perhaps special marketing, rental, occupancy conditions or options that favour their long-term involvement in the property. Meet with your anchor tenants frequently to ensure that they are doing everything possible in keeping with their lease terms and balancing their occupancy with the other specialist tenants.

4: Optimising the Tenant Mix

Tenant mix is more than just filling vacant spaces—it’s about creating a balance that enhances the customer experience and maximises property value.

So you would be leasing a shop or vacant space to the tenant, and you really want to balance out the overall tenant mix. That then is optimising the mix and encouraging retail customer interest. Consider the following as part of optimisation of the tenant mix.

• Zoning strategies: Grouping complementary stores together (e.g., fashion retailers in one area, food courts in another) improves customer convenience. As mentioned earlier, this is a ‘clustering’ strategy. You can have a number of ‘retail clusters’ in the property.
• Adapting to market changes: Regular reviews of tenant performance and market trends help adjust the mix accordingly. Watch what is happening in nearby retail properties and those that you consider are in competition for your customers. Are those properties better in what they do? Look at the tenant mix and overall layout in each case; you can learn a lot from reviewing other retail properties in the same location.
• Expansion and contraction: Some tenants may need more or less space as business conditions evolve. If you have tenants who could be relocated to improve sales and occupancy performance, talk with them and prepare them for the change at the end of the lease or when a suitable negotiation point has been achieved.
• Tenant retention plans: A proactive approach to lease renewals ensures stability and prevents unnecessary vacancies. Work well in advance when it comes to occupancy. A wise point of review is 18 months ahead of options, reviews, and make-good or renovation requirements. When the tenant moves inside the 18-month ‘window,’ it is time to start talking with them about retention, movement, or vacancy.

5 Managing Operating Costs

Retail shopping centres typically have higher operating costs than other commercial properties due to their extensive infrastructure and high customer volume. That then becomes a cost management issue and will involve a budget planning process. Consider the property for what it is and how it could change. Effective management involves:

• Budgeting for outgoings: Common area maintenance, security, cleaning, and marketing all contribute to operating costs. Split your outgoings between rates and taxes, general maintenance, and capital works programs.
• Wear and tear considerations: High foot traffic requires more frequent property maintenance. That will involve key components such as cleaning, concierge, security, transport points, and car parking. Consider the customer impact but also their experience in moving into the property and through it as they shop.
• Balancing rental income and expenses: Ensuring that costs remain within reasonable limits to sustain profitability. You can compare retail properties of similar size and location. Review the market rents, vacancy factors, income potential, maintenance costs, and customer bases.

6: Strategic Marketing and Promotion

A well-marketed shopping centre attracts customers, supports tenants, and sustains rental income. Therefore, a marketing plan for the property’s financial year must be created. That plan can also include contributions from the tenants as part of a marketing levy and some strategic involvement of the landlord.

Consider the shopping centre marketing plan for the upcoming 12 months, including in that plan the local area festivities and customer holidays. Ensure that your retail shopping centre is fully involved with the local area and the customers as they celebrate or holiday throughout the year.

There may also be another special category of customer to consider, such as tourism. Tourism customers are impacted by the seasons and the location. There will be certain times of year when they are more active in the location and in your retail property.

So, every retail property requires a strategic marketing and promotional plan that involves all the elements of the location, the customer, the property design, the tenancy mix, and the regional festivities.

Effective retail marketing includes:

• Annual marketing budgets: Many centres have dedicated budgets for promotional activities. Consider special times of the year such as Christmas, Easter, Mother’s Day, Father’s Day, and local town or city anniversary events.
• Seasonal campaigns: Retail sales fluctuate throughout the year, requiring targeted marketing efforts during peak shopping periods. Decorate your shopping centre to ensure it matches customer feelings and shopping patterns during festive holidays and periods.
• Tenant participation: Tenants often contribute to marketing funds, ensuring collective promotional efforts. The contribution is part of their lease terms and conditions and is generally a fixed percentage of their rental. So as the lease term proceeds and rents change, the marketing funds will also change.

7: Enhancing the Customer Experience

A shopping centre’s success depends on delivering a superior customer experience that encourages repeat visits and increased spending. Make it easy for your customers to shop frequently and get what they need.

You can do a retail marketing survey with customers once per year to understand what customers think about the property and what they want for the future. This involves:

• Convenience factors: Optimised parking, clear signage, well-maintained common areas, and easy access are all parts of convenience for a customer. Add to that review the ‘effectiveness’ of signage, doorways, malls, common areas, amenities, and transport points such as buses, taxis, ferries, and separation for staff parking.
• Safety and security: Most retail properties will have adequate lighting, emergency services, and surveillance systems. Cameras, security access systems, and alarm systems help tenants and customers feel safe as they transact business and shop.
• Customer feedback: Conducting tenant and shopper surveys twice a year helps identify areas for improvement. Have a team of people asking questions that are ‘customer focused’. When that view is done, get a similar survey underway with your tenants, as they will know a lot about what customers think and do as they shop. From the customer feedback, you will soon know what is missing in your tenant mix, and you will also know who your top-performing tenants are. You can then adjust your leasing plans accordingly.

8: Business Planning for Long-Term Success

Large shopping centres require structured business planning to maintain and improve performance. The retail property business plan is created once per year, reviewed monthly, and adjusted for new trends each quarter. All retail shopping centres should have a business plan that is adjusted for the tenant mix and property size. This includes:

• Ongoing tenant assessments: Evaluating lease terms, sales performance, and occupancy trends. This is where your tenant retention plan will give you information and leverage with tenant and vacancy changes.
• Financial planning: Balancing revenue streams from rent, marketing contributions, and anchor tenant agreements. Recognise that you must compare your numbers with other like properties in the same location and of similar size. You can then understand whether you are realistic or otherwise in terms of property performance and investment.
• Adaptive strategies: Adjusting tenant mix and marketing approaches based on economic conditions and customer behaviour trends. Throughout the year, you should be prepared to adjust to things that are showing pressures and change.

Conclusion about Leasing Shops

Retail leasing and shopping centre management require a strategic approach to rental structures, tenant selection, operating costs, marketing, and customer engagement. An experienced property manager and retail leasing professional are best placed to work with a retail property for the longer term. Experience matters with these people and helps them interact with the property owner to give strategic ideas and momentum in a changing retail market.

The larger the shopping centre, the more complex these dynamics become, and the retail property plan is even more important. A strong business plan, active tenant engagement, and customer-centric strategies are essential to ensuring the ongoing success of a retail property.