Turning Vacancies into Opportunities: Diversifying Income in Shopping Centres

Vacancies in investment properties are part of the tenant management and leasing strategy. Property owners and managers should keep tenant turnover low and have a plan for leasing all vacancies whilst they underpin the income stream for stability and growth.

So, it is time to explore alternative rental revenue streams and how you can improve property performance with them. Let’s look at a typical smaller investment property that is high on the target list for investors today. That could be a retail property with 20 to 30 smaller tenants and a major anchor tenant. These are the most common retail properties in the suburbs and most towns or cities.

First-time investors are always looking for properties of that type, typically in the budget range of $10m to $25m. Providing the leases are in good order, and the vacancies are under control, the retail property will have an attraction to many investors.

Lease Expiry Profiles and Calendar

When you own or manage a property of that type, it’s crucial to have a lease expiry calendar as part of your forward-looking planning. This proactive approach allows you to anticipate vacancies in the tenant mix and focus on keeping those vacancies to a minimum throughout the year. By taking control of your property’s future, you can ensure its continuous profitability and enhance the income streams.

It is always wise to work 12 months before any lease expiry date, and all the tenant lease calendar dates in a property; a full check of the tenant mix and the lease documentation is required from the earliest stages of property review and improvement. That is where the ‘calendar’ approach works well, and watching the upcoming vacancies and implementing leasing solutions early is wise.

What can you do with existing tenants in the mix? Tenants will re-negotiate leases early or consider relocations for expansion or contraction; it all depends on the lease terms offered and how the alternative lease package may suit them.

Re-negotiating lease terms with sitting tenants is a valuable service agents can offer and should attract a leasing fee. That fee can be a percentage of the full and normal leasing fee.

Improving Property Income Performance

So, the observation is that working with existing tenants to improve a property investment strategy is more manageable than finding new tenants.

Let’s say you have some vacancies in a property, and whilst you are looking at filling the vacancies, you want to get some rental for the vacant shops. Here are some ideas:

1. the Existing Tenant Mix and Requirements

Always start the income review to find leasing opportunities from your existing tenant mix. Some tenants will be more successful than others. From a retail sales perspective, some other tenants will be more ‘attractive’ to customers. Consider offering the vacant premises to the successful tenants in your property if they want more space or want to establish a ‘pop-up’ trading zone for the short term.

That generally works well on selected days of the week or when you have a lead-up to seasonal holidays and festivities. Make the asking rental attractive for short-term occupancy at, say, 50% of the regular market rent (it can also be a flat rate). The tenants using the vacant space will have set-up costs, so make the lease package attractive weekly for the short term.

2. Community Clubs and Service Groups

Approach community groups to see if they need or want a short-term occupancy to sell goods or connect with the community. That solution works with service groups such as the fire brigade, ambulance services, family services, life–saving groups, and Rotary or similar community service membership organisations.

3. Complementary Retail Displays

Approach the local car dealerships to see if they are interested in motor vehicle displays to sell or promote specific models of cars. This strategy works well when the financial year changes or leads to Christmas.

4. Advertising Banners and Billboards

Review the layout of your property to identify ‘blank spaces’, both internal and external that could be used for placing advertising banners and promotional leasing. You can either take on that space leasing yourself or create a ‘head lease’ service arrangement where an advertising company can take over the complete leasing approach and pay for that privilege.

5. Passing Traffic Exposure

Consider the position of your property and the passing traffic exposure potential. Subject to local council and municipal rules, you could place advertising billboards on the car park and property entranceways.

6. Lettable Additions to Property Improvements

Review the roof line of your property to identify any potential for ‘antenna sites’ for mobile phone repeater stations. As suburbs become more intensely occupied, alternative repeater stations are always attractive to communication companies.

7. Customer Car Park Services

Consider car detailing services in your property’s car park. A short-term service can attract local customers as they shop in your property. Council regulations will apply to how the service is positioned and can remain operational.

8. Extra Development space

The space around your property is valuable. While looking at the car park and understanding the local customer base, it is possible that a ‘pad site’ development could be considered for another retailer in the car park.

Bulky goods retail and food operators will consider car park occupancy, provided the development allows suitable exposure and customer attraction.

9. Naming Rights and Third Income streams

Some tenants and or local corporations could see the benefit in placing their business name on the subject investment property for customers and visitors to see. Ultimately, that could mean naming rights; for that, a sizeable fee should be paid for a lease term and placement. Three to five years would be sensible.

In a less-exposure local situation, it can still mean annual signage fees on the building’s roof line. Larger corporate tenants consider exposure valuable when building a presence or relevance in the local community.

Mining and timber companies in rural towns would be a prime example of using the signage process in a local area to boost community involvement and awareness.

The Big Picture in Leasing Space

These strategies offer alternatives to property owners and investors seeking to solve vacancy issues in their properties. There are plenty of investment property leasing alternatives to help boost the rental income streams in investment properties.

The key approach is to avoid vacancy problems and lease changes or expiry dates. That is how income can be protected and optimised in investment property today.