How to do a Tenant Mix Analysis in Retail Property

man in retail shop
Know your tenant mix.

In any commercial or retail investment property the tenant mix and tenant profile is really important to the performance of the property.  In these times of economic change with some businesses under a degree of pressure, the leases and income in a property should be the subject of a review and retention plan. The leasing manager or the property managers are the best people to do this on behalf of the landlord.

You can set up the process to be a major point of difference in your service as a real estate agent to your clients.  Give the process a name such as ‘Tenant Optimisation Plan’ and then market your services to it.

So what could this special service look like?  What would you do within it?  Here are some ideas:

  1. Review all tenants in a property on an annual basis to determine desirability.  Split the tenants into ‘A’ and ‘B’ class, wherein the top tenants that you must retain in the property are in ‘A’ Class.   They are the tenants that you will help to remain in occupancy and strengthen their position in the property.  The other ‘B’ class tenants will be those that are not essential to the performance of the property and can easily be replaced.  Some of those tenants you will replace with better tenants as leases expire.  That then says that you need a tenant replacement marketing plan.
  2. The ‘anchor’ tenants in the property will be very important to the future of the asset.  Those tenants are normally on long leases and they are also likely to have a long option term available.  Stay close to your ‘anchor’ tenants as they will have a real impact on the visitors to the property and the smaller specialty tenants.
  3. Any lease rent reviews and lease expiries should be considered well in advance as part of a property performance plan.  It is not unusual for that plan to be forward looking at least 12 months.  In the case of ‘anchors’, the time frame is normally 24 months.  You need plenty of time to handle vacancy and negotiation issues today.
  4. Market rents in the area are somewhat predictable and will form the basis of the business plan for the property.  Market rents will be impacted by vacancies, supply and demand, and future developments.  Track and assess all of these issues on a monthly basis.
  5. Check out the existing and comparable properties in the region.  Look for weaknesses or changes in tenant profile and vacancy factors.

All of these things allow you to formulate real recommendations for your client and help the property reach income and expenditure expectations.

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By John Highman

John Highman is an International Commercial Real Estate Author, Conference Speaker, and Broadcaster living in Australia, who shares property investment ideas and information to online audiences Worldwide.