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How to Choose the Right Retail Tenants for Shopping Centers

shopping center escalator in mall

A retail shopping center is a special place where the tenant mix just has to match the client and customer requirements for the location.  If you make mistakes in retail tenant placement then sales and customer interest in the property will slow.  That can only mean on thing and that is a decline in rent.

So there are issues to consider in finding the right tenants and placing them in the property.  Certainly the landlord should have a say in what they think about tenants and tenant mix choices, but the center manager should give guidance to the leasing process and tenant placement.

In this audio program, John Highman talks about retail leasing and the important choices to be remembered in attracting and converting tenants to a retail property and or shopping center.

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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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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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Talking Shop with Commercial Property Managers

woman looking at files.
Set up systems in commercial property management.

The commercial or retail property management process can be time intense and quite frustrating.  The observation is quite common.  Most property managers will be intensely busy every day of the working week.  On that basis they need to be organized to the tasks that really matter as part of providing quality professional services.  Here are some tips from our Newsletter.

It is worthwhile noting that an experienced property manager will bring significant skill and opportunity to the landlords that they serve.  That will be across the property in a number of ways including the specialized disciplines below:

  • Rental growth
  • Expenditure control
  • Vacancy minimisation
  • Tenant mix strategy
  • Property performance
  • Lease documentation
  • Safety and risk management
  • Property value improvement
  • Renovation and refurbishment

So there are plenty of ways that the manager can bring growth and opportunity to the clients that they serve.  It is just a matter of understanding the plans and the targets of the client as they relate to the future of the property in the region.  It is a wise process to create a property business plan on an annual basis to manage the variables of property performance for the client.

So let’s go back to the tasks and activities of the property manager.  If the correct person is chosen for the portfolio and the client, the other balances required will include the following:

  1. Be aware of the amount of time it takes to manage a property for a client.  Some properties and clients will require significantly more work than others.  If that is the case, the intense workload should be reflected in the fee.  One way of calculating a fee is to consider the amount of time each week a property will require for ongoing control.  Consider the factors of the tenancy mix, lease documentation, maintenance, customer involvement, vacancy issues, and rental collection.  The larger the property, more intense these issues will be.
  2. With quality clients and properties, the reporting process can be quite specific and tedious.  The factors of income, expenditure, lease management, maintenance, tenancy mix, and documentation will require special processes and established guidelines.  In a large property, it is not unusual to be reporting to each of these factors on a weekly basis.  That written report will support any verbal instructions given or communications made with the landlord.
  3. The best way to get your job and portfolio under control is to work to a daily and weekly plan.  It can also be said that the end of each month will be busier with reporting requirements and property analysis.  So look at the factors of work that apply to each day, each week, and each month.  Split the working day into two segments.  The first half a day should be devoted to documentation and reporting issues.  The last half the day can be devoted to clients and tenant contact.  Obviously there will be some variations and pressures that apply.

So you work in a busy segment of the market.  At least 80% of your time should be under control.  In that way you will preserve the quality of performance and control that your clients require in commercial and retail property management.