Tenant mix analysis is a critical part of property performance. That is certainly the case in a retail property. The correct tenant decisions will underpin property income, customer sales, and lower the vacancy rate.
When you are involved in managing or leasing a shopping center, the tenant mix planning and strategy process will form part of the business plan for the property. Each year the business plan will be created or updated; every quarter the plan will be reviewed and actions adjusted as required to improve and or address tenant placement issues. Tenants will be chosen, changed or removed from the property based on the decisions and directions of the property plan.
So let’s look at some factors that can help you with tenant strategy and mix in an average shopping center. You can add to these issues based on your location, property, and tenant profiles:
- Merchandise or Product – Look at every tenant to ensure that their product offering suits the customer profile and demands on the property. Implement a customer survey process in the shopping center every 6 months to ensure that you are staying ahead of the issue.
- Location – Assess every tenant with regard to placement in the property. They could be located on a walkway, adjacent to a main doorway, or in a mall common area. Are they placed in an area to attract and capture customer interest? Are they the best tenant for that location? Should you move the tenant at the next lease expiry?
- Lease expiry or option – Keep a close eye on lease expiry issues and upcoming vacancies. At least 12 months out from any expiry, decisions should be made as to how any vacancy should be handled and what tenant and tenant type may be placed into the vacancy location. Lease renewals will also come into that consideration.
- Clustering – Watch the clustering impacts of some tenants in or near others in the one property. The object of clustering is to create zones of customer activity and improve sales. Tenants should be chosen for a cluster based on relevance to each other and the ability to extend the customer sale from one shop to another.
- Lease Type and Lease Rent – In any single property you should have lease standards that you endeavour to implement with any new lease negotiation or tenant situation. In that way you can stay on track with income potential and the established investment targets for the landlord. Do you prefer net or gross leases? How do you recover outgoings for the property through the lease? These decisions should be made as part of the property business plan.
- Renovation and Relocation – In some older properties or those that are nearing renovation, it is necessary to watch the timing of lease expiries, renovations, and relocations for each tenant. You can use or insert lease clauses as part of any lease negotiation to achieve that control; the lease should be negotiated with the future in mind.
- Specialty Tenants – Your specialty tenants should be chosen with the customer profile and shopping patterns in mind. The specialty tenants should then be placed with relevance to the clusters and anchor tenants. Monitor the sales for each specialty tenant, and each merchandise group; your lease document should allow you to do that. In that way you can see any weaknesses in the tenant mix and with customer sales before the damage occurs.
- Anchor Tenants – Your anchor tenants will have long term leases and special rents that are much lower than the rents paid by specialty tenants. It is quite common for anchor tenants to have turnover based rental structures in addition to a base rental. As trade improves for the anchor tenant, the rental return improves for the landlord.
- Retail Chains and Franchise Tenants – As a sub segment of specialty tenants, the retail chains and the franchise groups are likely to attract customer interest. The important thing here is to know what merchandise and franchise brands are likely to customer interest and hence potential sales.
- Market rent – It is wise to assess and track the market rents for the property type in the local area. You can then understand the performance of the market rental in your property. It is important that the market rental be underpinned by wise leasing decisions and high quality lease documentation.
From these things you can see the importance of preparation in considering the tenant mix in the property that you lease or manage. A good tenant mix plan will help property performance for years into the future. That is exactly what the landlord is looking for.