Clustering your retail tenants in a shopping centre can significantly help customer attraction and sales. This reduces the possibility of vacancy and improves rental collections. That is a good formula.
Typical retail shopping centres are constantly changing their tenant offerings and positioning.
In any large, thriving retail shopping center, tenants will be moved around when their leases expire. New tenants will be brought in at the right time in key spots or within certain groups of shops.
So, what is the idea behind retail shop clustering? It is the deliberate clustering of tenants in and around specific areas of the property for customers to go into another shop nearby and make a second purchase after their first. Clusters of tenants are all about creating sales and helping the shopping centre thrive over time.
A Tenant Cluster Plan
How can you create a clustering plan for your retail tenant mix, and where is it controlled? Ultimately, it is in the business plan for the property.
Surprisingly, the clustering plan is included in the shopping centre business plan and is established before the start of any fiscal year so that the entire shop configurations can be considered.
You then keep an eye on the big picture of property performance, such as when leases expire, or options become available.
Base Data to Work With
The base data you will need for the clustering and lease planning review can start with the following:
- Competing properties in your location will be the research base for your review. Know where your competing properties are, what they offer, and how they operate. You can also learn a lot from reviewing the tenant mix of other properties. You can look at their leasing mistakes and their occupancy successes. Some of those things can be replicated in your property if needed. You can also approach the successful tenants in nearby properties if they want to relocate at the lease-end. They may also wish to expand their operations into your property. Ask those tenants’ occupancy questions, and you will find out what they are thinking and doing.
- Retail customer requirements will be next on the list to understand. This review or research requires you to assess the customer base, how it is changing, and how you may serve it at different times of the week and throughout the year. For example, in some towns and cities, the customer base could be new families, mature families, retirees, and tourists. So, look at the percentages of customers in each group and determine where you can get most of your sales. That selection process will move you into the marketing plans and promotional decisions to help your retail tenant mix to thrive.
- Tenant types in merchandise groups – Understand your tenant base, especially if you have multiple tenants providing similar services or products in a larger retail property. Also, look at the tenants where complementary products, such as sports fashion and sports footwear, may exist. For instance, tenants with a sports-related theme could all be in the same cluster.
- Major tenant considerations – Your significant tenants will be supermarkets, department stores, discount stores, or major medical centres. The major tenants are those that attract shoppers or people for reasons that can help your property’s performance plans. Those significant tenants will be occupying space on extraordinary rents and long lease terms. Without those major tenants, your property could struggle for secondary retail trade. Know your significant tenants, their activities, needs, and intentions. Then, use your successful tenants to underpin the success of your retail property.
- Franchise brand performance review – Franchise retail offerings in a retail shopping centre performance plan are unique. Typically, the franchise brands will have location and branding requirements, plus leases that match the franchise agreements. When leasing retail shops to franchise brands, be flexible about their operational, marketing, and branding needs. Have a target list of retail franchise tenants that can bring you more customers. Talk to those franchise groups every quarter to understand what is happening and what they need for property occupancy.
- Lease terms and options remaining can be charted within your property business plan. I like to monitor the lease terms and choices at least 18 months out so that any lease decisions, vacancies, and renewals can be actioned early. A thriving retail shopping centre is optimised for occupancy over the coming lease terms and events.
- Your priority tenants list will be something to watch and shape over time. These are the high-value tenants you consider critical for the property’s success. You will talk to these tenants and pay attention to them when it comes to renewing their leases and getting new services. You do not want to lose a priority tent through some overlooked lease matter or negotiation. When lease situations allow, nearby property owners will likely try to take your priority tenants into their shopping centre. So, the message here is that you keep your priority tenants from shifting priorities or looking elsewhere regarding leasing occupancy.
- A secondary tenants list is always helpful in planning for the future. A list of secondary tenants in your property will be those you believe are beneficial for the property’s performance over the long term. They will have a product or service offering that customers currently use and sustain over time. The secondary tenants should be given lease structures and provided early in any occupancy change to encourage them to stay in the property or move and expand into other locations as vacancies allow.
- A redundant tenants list is wise so you can make clear choices about those underperforming occupants as part of the cluster plan. The focus of this list of those tenants is to track those that do not benefit the property in the future. Given the changes to the retail trade and Internet shopping today, plenty of retail tenants are becoming redundant regarding products and services. As you figure out how retail sales change for different types of customers and tenants, make a list of redundant tenancies so you can focus on the tenant and see if any other services or products might work for the customer base. If there are no solutions for that tenant type, they should be removed from the property at a convenient time.
- A shop vacancy report and projections chart will aid your lease-tracking decisions. Keep the information and the chart up to date throughout the year and update it quarterly.
- Expansion and relocation requirements for existing tenants will vary with the pressures of the economy and the customer requirements or shifts in your location. As your customer base changes, so will your sales, your ability to find good tenants, and, in the end, the rents that your tenants can pay you. So, the landlord is at the bottom of the chain of activities; whilst they own the property, their success depends on a thriving sales environment for the tenants. Therefore, everything up the leasing or tenant chain must be optimised for the landlord to have a flourishing and prosperous shopping centre.
- Market rent assessments are essential to watch. Doing a full review of market rents half-yearly is valuable to prepare for any changes in your lease strategies, negotiations, and vacancy plans.
- Budget rents and market comparisons will be made from the previous point. The budget rents set the occupancy plans for the year with all existing tenants and any new tenants by type as they are found. Ensure that you set aside a vacancy allowance time with all your vacancies. Nothing leases quickly, so be prepared for that vacancy downtime.
- Property plans will show you where the zones of occupancy optimisation could be. That may be the doorways, common areas, and foot traffic zones. The property’s plans can also be used to examine the common areas thoroughly. Think about how people move to and from the washrooms, carparks, taxi ranks, transport drop-off points, and doorways.
- Priority zones such as entranceways and doorways should constantly be monitored. That will involve ‘door counters’, and those numbers should be taken daily, weekly, and seasonally. The comparisons you make from the ‘door counters’ will help you make tenant movement and placement decisions. But, again, that is where the ‘cluster’ decisions will help.
- ‘Pop-up’ tenant plans and activities happen in most shopping centres today. They are a short-term solution for unexpected vacancies or those empty shops you get when you change the property’s layout over time.
- Standard lease structures for new leases should be updated annually to know how you will be leasing premises, at what rents, and how. A standard lease will help you protect the landlord’s investment targets.
- Tenant retention planning becomes a logical control tool from all the above strategies. You will then know who the tenants you will support and how that will be done. As part of that, track the results of recent tenant meetings, so you know how some tenants are trading, changing their focus, or experiencing pressure.
So there, you have all the key elements of assessing retail tenant mix clusters in your leased and managed retail property.
Use these ideas to help your landlords with shopping centre leasing or retail shop tenant replacement. Understand all these variables and use them to optimise shopping centre performance.