A vacant tenancy in a retail shopping centre can be massive drain on retail business and customer sales for all the tenants surrounding it. For this reason a vacant tenancy has to be resolved quickly and efficiently.
If you have too many vacant tenancies in the one property it can set the foundation for a decline in retail trade. Customers like to visit a property that is attractive, vibrant, convenient, and that has the required tenant mix. Vacancies can impact that profile.
Over time a decline in customer sentiment will have an impact on market rental for the landlord. Your primary focus in leasing and managing a retail property should be to maintain occupancy at a sensible market levels.
To lease a vacant tenancy some real strategies are required. In a ‘rising market’ the leasing process is not so much of a problem, but in a ‘slow or declining market’ the vacancy challenge can be significant. Here are some rules to help the process.
Stay very close to the existing tenant mix and the leases supporting that mix. Some tenants will from time to time have challenges and problems in business or occupation. Keep communicating with the tenants regularly to understand their challenges and help them through any occupancy issues. In a ‘down’ market, a vacancy can be very hard to lease. It can be a drain on rent and outgoings for a very long time.
Make sure that you are working well in advance when it comes to lease renewals or option negotiations. Most leases will have time provisions that apply to the renewal or the option process. That being said, there is nothing to stop you working earlier with the tenant to achieve a satisfactory renewal or option agreement.
Some existing tenants in the property may require expansion or relocation. Be open to their business needs, and identify alternative locations within the property that may suit or solve the expansion or relocation problem.
Review other properties in the local area that may be competing with you and your tenancy mix. Look for the challenges and the opportunities existing in their tenancy mix. Approach their more successful tenants to see if relocation is possible.
Given the sales performance of your current tenancy mix, look at the segments that are quite successful and the others that are not so. There will be reasons for a tenants result in sales. It could be the product or service offering, the tenancy location, the tenant themselves, or the marketing process. Some of these things can be solved through careful management procedures.
Monitor the clustering affect within your property where some tenants seem to be feeding sales off each other. The mix can be improved through improving the clustering process. Identify the tenants that can work with each other with the same customer type. For example, a coffee type tenant could be placed alongside a ladies fashion tenant and a ladies shoes tenant. A coffee tenant would be extending the customers time in the general area and potentially the sales potential.
Consider the placement of the anchor tenants in the property and how they interact with specialty tenants nearby. Proximity to the anchor tenant will be a leasing advantage for some tenancy types.
Create a tenant retention plan that encourages ongoing occupancy for those priority tenants in the mix. The retention plan will also help you when it comes to replacement strategies and removing poor performers from the mix.
Leasing decision should be based on available occupied space, the prevailing market conditions, market rental, lease incentives, and occupancy costs. Stay ahead of these industry trends and challenges. Look for any new or upcoming property developments that could interfere with or change these factors.
If you do have a vacancy in the property, and a long term lease seems to be difficult to achieve, look at all short term occupancy opportunities with some of your other tenants, or casual tenants from elsewhere. Short term occupancy at a lower rental will still help you achieve the vibrancy in the property and maintain the customer’s interest.
When it comes to moving a tenant into a commercial or retail property, you can develop a checklist to keep you on task and cover the critical issues relative to the property and the parties involved.
In leasing and managing a property, there are many things that happen every day to distract you. The checklist process will cover issues well and help prevent errors. Moving a single tenant into a property is not all that hard, although the issues become much more complex with multiple tenant movements, just like that which you get when you are looking after a large project or shopping centre.
So here are some tips that can help you structure your tenant movement processes and controls.
As a general rule nothing happens until the lease is signed by all parties, rent is paid, deposit is paid, guarantees are in and validated, and any other lease requirement completed. Hold on to the keys until these things have been done.
Meet the tenant on site to inspect the premises together. As part of that process take plenty of photographs around and in the premises to record the state of the tenancy at time of handover.
Give the tenant a set of ‘fit out guidelines’ that control the building activity that is likely to happen in the premises. Those guidelines should also contain the plan approval requirements and the specification of materials and finishes to be used in the premises.
Give the tenant a set of ‘building rules’ that tell them exactly how things happen in the property. This strategy is wise when you have a building with a number of tenants. They all should occupy to the same set of rules. That will include access, common areas, security, property use, and risk management.
Note the condition of the premises in a ‘condition report’ that the tenant should sign at the end of the inspection. Give them a copy and you keep a copy on file. The report will be important at the end of lease term when the make good is under consideration.
Tenant fit out works should not commence until all the required plans and approvals have been obtained. This then says that you should get the plans and drawings from the tenant to submit to the landlord. If the landlord approves those plans, they can then be submitted by the tenant to the local building approvals authority. Fit out work should not commence until the approvals are in place.
Put the tenant details into the directory signboard system for the property.
Whilst the tenant is completing their fit out they should not disrupt other tenants nearby.
When the fit out has been completed, inspect the premises to ensure that the works undertaken comply with the approved plans and drawings.
Get a full set of tenant plans after the works have been completed.
You can add to this list based on the property, the landlord, and the tenant. Create your checklists to help you with all of this tenant movement.
In commercial real estate today the leasing of premises can be a real challenge. This is especially the case if you do not have a good database of tenants to call on and connect with. This is where expert property leasing specialists will have the advantage providing they have a good collection of tenants that they regularly connect with.
Here is a fact for you. The difference between an ordinary leasing executive and a top agent leasing executive is the database. The more people that you have spoken to previously and that you can call on with confidence and relevance today, the better off you will be with your leasing conversions and business.
In this property leasing market, many variables exist such as:
Amount of vacant space available
The enquiry rate for different property types
The quality of the listings
Rental types (gross and net)
Comparable and competing properties
The ability to pay market rental
The ability of the landlord to accept true market rentals to encourage a lease
The rate and type of incentive that is available for tenants in differing property types
The supply and demand of space in the different property types
All of these things produce variations of what tenants want and how they can negotiate on a lease. For this very reason you really do need a comprehensive collection of tenants in your database. As you add prospects to that list, make sure that you keep in regular contact. This industry is based largely on relationships and trust. Top agents win the deals and the listings mainly because they have the trust established with the right people.
To build an ‘everlasting’ list of tenant prospects today, here are some strategies for you:
Understand that the best results will come to you when you specialise. That will give you the ability to talk rents, leases, and improvements in properties with greater relevance.
Determine the property type and tenant type that you should be working on. Make sure that the segment of market is active and growing (not contracting).
Get to know the rental and leasing strategies behind leases today with your specialist property type. Your client will normally be the landlord, and they need help to see the best way to attract lease enquiry and tenants to the property.
Talk to 15 businesses per day. Most of that can be done on the telephone. Importantly these businesses should be ‘new’ prospects that you have not spoken to before.
Depending on your area and location, you should have over 600 businesses in your database that you speak to regularly. Focus on relationships and property requirements.
Consistency is the key to getting results in commercial property leasing. Examine your diary and personal systems to ensure that you really do connect with enough of the right people. When you have a good database, landlords will be attracted to you. Landlords cannot ignore a top agent with a relevant and large database. Sell your leasing services on that basis.
Selecting a tenant in a commercial or retail property can be a challenge. Vacancies can occur within the property from time to time throughout the year. Some of those vacancies will be expected, whilst others will be the result of a tenancy default.
When you manage or lease a commercial or retail property, it is wise to incorporate a lease management and tenancy mix strategy into the property business plan for the property each year. The lease management plan will help you when it comes to finding and negotiating with new tenants to the property.
Given that each particular property is unique, and every landlord has special priorities relating to their property investment, the selection of a tenant to fill a vacancy is quite important. Here are some tips that can be applied to selecting a new tenant for your commercial or retail property:
In an ideal world, you want the tenant to be of good quality and high profile. The tenant of this type will bring stability and benefits to the overall tenancy mix. Other tenants in the property can benefit from a new high profile tenant entering the property precinct. For this very reason, franchise tenants and the associated branding they take with them will be quite desirable in the tenant selection process.
The landlord for the property should be encouraged to establish a standard lease that matches their property intentions and property investment. This lease can then be easily used when you negotiate with a new tenant. It should be noted that many solicitors acting on behalf of property clients do not understand the property, its location, or its functionality. Encourage the client’s solicitor to visit the property first before any standard lease is put together.
The age of the property and the intentions of the landlord will have impact on the refurbishment and renovation activities to occur. The lease for the tenancy should be prepared with due regard to tenancy renovation, and property refurbishment. It is not unusual to ask the tenant to renovate their tenancy every three or four years as part of occupancy. A condition can be placed in the lease to this effect.
Any tenant seeking to occupy vacant premises should be able to provide some history occupancy in another property. It is desirable to talk to other landlords or property managers to ensure that your intending tenant is of high quality. If on the other hand the tenant is a new business, then you will need to satisfy yourself when it comes to business stability and long term occupancy. When that is the case, the form of guarantee or bond that you use in the leasing arrangements will be quite important.
The prevailing market conditions will have impact on market rentals, rent reviews, and lease options. It may also be the case that a lease incentive will need to be provided to attract a tenant to the vacancy. Assessing market conditions will therefore be critical to the leasing negotiation and finalization.
Every commercial or retail property will have standards that apply to hours of trade, and terms of occupancy. They in turn will have impact on property access, security, customer access, and operational costs. Any property that is closely geared to higher traffic flow such as that in a retail shopping centre, will have higher property operating costs to consider and structure into the lease rental.
When you create a good lease for a property and the landlord, it strengthens the overall investment for the long term and helps the property sell if and when that is to occur. Taking shortcuts when it comes to lease documentation will reflect badly when it comes to property performance and tenancy mix stability.
If you want more free tips for Commercial Property Agents you can get them in our Newsletter on this site.
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