A shopping centre will be renovated much more frequently than office or industrial property. That is largely due to the pressures of customers and tenant use and the requirement to keep the property looking at its best for customers and visitors; hence increasing sales potential.
It is quite common for different levels of renovation to occur in a shopping centre every 5 to 8 years. This then puts pressure on the leasing strategy and also the leases of all tenants. When a lease negotiation is underway, careful thoughts should be given to the section of the property that the lease is located within as well as the stage of common area renovation that may or may not be needed.
This retail property upgrade and maintenance issue will complicate any retail lease option that is requested by a tenant. That is one of the big reasons why larger and more successful shopping centres will not give a lease options as part of agreeing to a new lease with a tenant. The only way a landlord can correctly control the future of the property is to be watching the placement of new tenants and leases; giving a tenant the option to renew occupancy removes control of the premises from the landlord. Potentially that error of judgement and loss of control through an option can impact the tenant mix for some years and lessen the advantages of tenant clustering in prime retail areas.
So let’s say that the landlord has control of their leases and has not made those errors of judgement in tenant lease placement as mentioned. It is time to consider the best ways to get shopping centre renovations underway. Planning and investigation is required.
Here are some ideas to help with the property upgrade:
- Depending on the size of the renovation project, there will be time frames to the approvals and works required. Consider the best time of year to start the construction works and then work backwards to understand how much time will be required to get all necessary planning and building approvals in place. Some of those approvals may involve complex issues such as environmental, heritage, workplace health and safety, as well as final rental income considerations during and after the project is completed.
- Approach engineers and architects to seek their involvement in the preliminary work. Ensure that the people that you approach are qualified in construction and renovation with the size and type of property.
- Emphasise to your chosen engineers and architects that their proposals and preliminary design work for the renovations will not be the final proposal; they can then be free to ‘open up’ on critical design and building issues without fear of cost considerations and competitive ‘short listing’.
- Get a line sketch of the property and the areas involved in renovation for use in the construction study and proposal activity. That can be supplied to all consultants and property specialists.
- Appoint a building inspector to look for code violations and compliance issues that may need to be integrated into the renovation project.
- Instigate a number of meetings with local government agencies and approval authorities so you can discuss ‘informally’ the potential scope of works; seek their ‘unofficial’ guidance to intended words approvals and how they can be approached.
- Look at the leases that are likely to be impacted by the upgrade works. Those leases may create issues of compensation or lower rent for the tenant whilst the works are underway.
- Establish a preliminary scope of works and prepare to brief the tenants in the property to how they will be impacted in property upgrade activities.
From these things you have the ability to work accurately on the plans for renovation. Strategy and timing are highly important when it comes to upgrading any retail property. Protect the future of the property by maintaining top presentation and optimising the tenant mix.