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Shopping Center Management Strategies that Really Work

Female figures with shopping bags uid 1460952
Shopping Center Management is largely about the customer.

The shopping centre management process is quite special in so many ways. That is why only certain brokers and agents take up the challenge of retail leasing, management, and sales. There are things to know and things to do. The benchmarks and the indicators are different in ‘retail’.

 

(N.B. these ideas are also sent out to regularly to our friends in Commercial Real Estate Online Snapshot to help amplify brokerage results…. Get your access here)

The goals and targets that are standard to the retail process are usually improving income, reducing vacancy factors, and keeping your good tenants for the long term. You could say that they are the major internal factors of property performance for a typical retail property or shopping centre today.

 

Know the Retail Factors of Influence

So what else do you need to think about? In addition to the nominated items, there are the ‘external factors’ that are harder to control. The external factors are typically shopper spending patterns, shop visits, frequency of shopping, and the amount of money spent on average per shopper. The marketing of the property will be part of the overall plan.

 

You can now see why a property performance plan is really important in any retail property today. So let’s put some of this together.

 

To keep all of these things in balance and on track there are a few business factors to implement in the running of a retail shopping centre. Here are some of them:

 

  1. Develop a business plan – A business plan in retail shopping centre performance is and should be all encompassing, generally covering all the issues of the daily running of the property and the involvement of tenants, customers, and investors. With a good business plan, you can make choices when it comes to rentals, tenant movement, renewals of leases, and property expenditure.
  2. Know your tenants and their priorities – Some tenants will be trading more successfully than others. Look for the differences to see what can be done with trading and sales. It is wise to look into gross profit and net profit margins with any tenancy group. The averages will tell you if a tenant is trading more successfully than others.
  3. Review all of your leases – The shop lease is the foundation of income recovery and growth over time; with all leases you must know how they work and what is involved in enforcing lease conditions when matters of change or risk occur. Each lease is different so you will need to build a profile of the tenant’s lease and the critical dates. Track the critical dates so you can take action early in any issue or problem.
  4. Establish a tenant retention plan – Differentiate your tenants so that you are protecting and encouraging the best tenants to stay in the property for the long term. They may need encouragement, so a tenant retention plan lets you set the rules to the process.
  5. Watch the sales and trading figures – You can watch these figures if you have the cooperation of the tenants in the property. You can gain and protect that cooperation through the terms of the lease. From those figures you create graphs that show moving annual turnover (MAT) and sales in merchandise or retail segments. Ideally the tenants in the property should have to produce turnover figures for their shop on a monthly basis. From that point it is easy to see the retail segments that are selling products well, and also the other segments that may be struggling. That is where the tenant placement and tenant mix then has a valuable strategy for the property. You can build clusters of tenants around the property so that customer interest is encouraged and sales are boosted between like or complementary tenants.
  6. Develop a marketing plan for the shopping centre – A plan of this type will allow for the retail sales seasons at different times of the year. There will also be themes for the local area and customer interest.
  7. Reduce vacancies with a tenant retention plan – The only reason you need vacancies in a property is when you are about to renovate and move tenants around. A few vacancies will give you the flexibility to change the property. When you look at the total tenant mix in a property, some tenants will be more important than others to the future of the asset. That is where the tenant mix plan comes in; you decide who you want to keep in the property and for what reason. You then build a rent a leasing plan around those factors.

 

So there are some good things that you can do here with retail shopping centre leasing. Understand the property in a comprehensive way. Then you can match the property strategically into the location and the customer demographic.

(N.B. these ideas are also sent out to regularly to our friends in Commercial Real Estate Online Snapshot to help amplify brokerage results…. Get your access here)

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Shopping Center Managers – How to Assess and Improve Retail Shopping Center Performance Comprehensively

woman with shopping bag
Understand the reasons behind and for a successful shopping center.

A retail property and particularly a shopping centre is a special asset in many different ways.  It takes skill and knowledge to make something of property performance.

There are numerous things to put in the retail ‘balance’.  Special strategies are required.  Are you up to the retail challenge?

Understand the retail facts

So what are the variables that make this so challenging?  Consider these for starters:

  • Tenants struggling to make sales – Some tenants will always struggle given that they may not be offering the right products or services. They may also be inexperienced in retail trade and sales.  If you have a difficult tenant in a property  it is perhaps better to move them on at the end of their lease (assuming that they can trade until the end of lease)
  • A tenant mix that just doesn’t work for one reason or another – A poor group of tenants with weaknesses will quickly slow customer interest and repeat visits. That weakness then leads to sales decline.  You must quickly fix a retail shopping centre tenant mix if you have issues that are weaknesses and impacting property performance.
  • Vacancies currently in the property or those that can be expected – When you have empty shops to resolve, ensure that you are coming up with immediate strategies such as creating short term occupancy and placing marketing material in the empty space. Customers will see the vacancy so build some ‘vibrancy’ into the empty space.
  • Market rentals and strategies for the property – Understand what the rents are doing for the property type in your region. How does your property compare?
  • Outgoings recovery from the tenants – The lease documentation will be important when it comes to outgoings strategies and recoveries. The rent types used in the property will also have an impact.
  • Customers and their spending patterns – At different times of the year the sales results change for the retail sector. Watch the process and how it is impacting your tenant mix.
  • Lease documentation that is complex and critical to occupation – Understand all of the leases in the property. Some will be better than others.
  • Landlord net income requirements – The landlord will have expectations when it comes to the net income they achieve. The expenditure in the property will place pressures on cash flow.  Understand how those things work in your retail property.
  • Retail sales patterns for the region – Always look at shopping and sales trends for the region. Understand if your property is being pressured by other properties locally.  Understand why that is the case and try to fix the weakness.
  • The configuration and presentation of the property – It is a fact that any retail property will be higher in upkeep so costs and strategies will be required. The presentation and functionality of the property has to be at the standards expected by customers.  In that way the customers can keep coming back to the shopping centre.  A retail property will soon be in decline if maintenance and presentational factors and lacking.

Every one of these issues can demand specific focus and effort from you as the specialist broker to bring about a resolve for all concerned.

So if you are a retail property manager or specialist leasing manager, you will know the importance of what I am saying here.  Are you up to the retail challenge?  Can you handle these issues in a comprehensive way?  Plan and improve retail property performance from a base of personal retail skill, knowledge and strategy.

You  can get more tips and ideas about retail property performance in our eCourse ‘Snapshot’ right here.

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Commercial Property Leasing – A Tenant Mix Orchestration for Property Success

people walking in shopping mall
Analyze your shopping center and tenant mix.

In retail property and shopping centre performance today, the tenant mix and the income created from the tenants in occupancy needs to be shaped and improved over time.  That is where ‘tenanting mix orchestration’ is a useful skill to learn and to feed into the property investment strategy.

The suggestion here is that the tenant mix can be shaped and improved.  That is certainly the case in retail property performance.  That is your job.  The landlord will benefit greatly over time by a well-considered and controlled tenant mix.

Every lease and every tenant in occupancy should be looked at in balance with the surrounding tenants, the shopper clusters, and the customer profiles.  The terms and conditions of each individual lease should be negotiated to standards that match the investment targets of the landlord.

Correct Tenant Placement

Here are some ideas to help you study and orchestrate the correct retail tenant mix and property improvement plan for your landlords:

  1. Anchor tenants – You have to start your assessment around the stability and business activities of the anchor tenants. Look at the lease conditions that apply to each and every anchor tenant in the property.  How long are they in occupancy?  What are the terms and conditions that apply to their occupancy?  How can they integrate their business activities into the success of the overall property?
  2. Customer profile – You can’t move your property to another location. On that basis your customer demographic will be specific to certain incomes, employment, and family profiles.  Understand your customer base and how those customers like to shop locally.  You may need to undertake a marketing study through the local area to get the most recent and up to date information about customer activity and or future needs.  When you understand the customer, you can set the strategies in place for the ideal tenant mix and property profile.  You may also be pulling in the customers from outside of the area through tourism and transient people.
  3. Property design – Every property will have factors are designed to understand and integrate into the tenancy plan. Entrance points, common areas, congregation points, and transport drop off points all influence foot traffic and potential retail sales.  The tenancy mix should be designed for customer interaction and sales improvement.  That base strategy requires you to put the right tenants in the right locations.  You will have a mixture of small and large tenancies to consider.  You will also have tenancy locations requiring special consideration such as food retailing, fashion retailing, entertainment, and services.  You can get plenty of ideas by looking at other comparable properties locally or regionally.

From these three simple concepts, you can set in motion a comprehensive tenancy mix plan and retail sales strategy.  Understand the property, the tenants, and the customers.  Balance at equation so that the landlord can optimise rental returns and minimise vacancies.  That is what tenancy mix orchestration is all about.

Get our eCourse here for Commercial and Retail property agents and brokers.

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Tips to Leasing Vacant Shops in Retail Shopping Centers

man in fruit shop
Retail shop leasing is special.

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.

  1. 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.
  2. 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.
  3. 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.
  4. 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.
  5. 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.
  6. 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.
  7. 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.
  8. 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.
  9. 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.

You can get more tips like this in our regular newsletter right here.

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How to Lease a Commercial Property Today

commercial real estate fee negotiation.
lease strategies are really important

It is important that every commercial property has a lease strategy to support ongoing cash flow and reduce vacancies.  These strategies should be integrated into the business plan for the property and for the landlord.

It is of note that a single lease for a new tenant should not be looked at in isolation.  It should be looked at broadly with due regard for the surrounding tenancy mix, the income required for the property, and the impact that the long term occupancy may have from the initial term and into any option period agreed.

Here are some ideas to help you consider the leasing of a commercial property:

  1. Assess the local area for competing properties.  Some of those properties may be taking or attracting your tenants now.  Look at those competing properties to see what is happening when it comes to vacancy profile, tenant mix, expansion and contraction, and the lease marketing strategies.  Your property will need to be equal with, if not better than, those competing properties.
  2. Assess the market rental through the local area so that you can create attractive lease packages for incoming tenants.  When it comes to leasing, the start rent is not as important as the cash flow over the lease term.  The starting rent should be regarded as something of attraction to create lease occupancy.
  3. The rent review structure over the lease term will give strength to the cash flow for the landlord.  The best way to assess ongoing cash flow is through the calculation of the lease and its net present value to the landlord for the duration of the lease.  You are therefore assessing the income over time, not just focusing on the rent today.
  4. Some landlords prefer not to give options for renewal.  This is certainly the case when it comes to a quality or larger property where the landlord wants to retain flexibility in the tenancy mix.  Many landlords of the larger shopping centers will avoid giving options to tenants for ongoing occupancy.  The reason for doing this is that they like to move tenants in and around the property based on tenant mix and clustering.  When they move the tenant, they can improve the overall cluster and general area including the other tenants.  This will then have further benefits for the overall income return for the landlord.
  5. When you negotiate the necessary rent reviews in a lease document or new occupancy, mix the rent reviews appropriately so that the landlord gets a sensible and realistic increase in net rent income.  The rent review methods available will be variable such as market rent, fixed dollar increase, fixed percentage increase, or something that is indexed to the consumer price index.  You can make the right choices based on the property type, the landlord, and the legislation or property laws that apply to lease occupancy with that tenant situation and property type.
  6. If you manage or lease a property with a number of tenants in occupancy, look at the overall lease profile and expiry dates over the long term.  Any lease that is to be expiring inside the next 18 months should be focused on now for lease renewal, lease expiry, tenancy change, expansion, or contraction.  Start talking to your tenants early so that any appropriate changes to the occupancy can occur with measured and structured negotiations.  Whilst the lease document may provide for certain other time frames on lease renegotiation, there is nothing to say that you cannot start this process early.
  7. Keep in close contact with the current tenants in your property.  They will have pressures of occupancy and on that basis it is better for you to work with those pressures than let the tenant move to another nearby competing property.  Keep talking to your tenants on a monthly basis to understand exactly what they are thinking and doing as a business.  Help them stay with the property for the long term if it suits the landlord’s situation.

The leasing of a commercial or retail property is relatively straightforward when you follow the rules.  You can create a checklist with the above matters and other things relative to the property type.  Control is everything when it comes to making a lease strategy and structure successful for the landlord.