A retail shopping center is a business within itself. It is a cash flow produced from the tenancy mix and the customers to the property. The shopping center manager and or shopping center leasing manager should be well versed when it comes to optimizing the performance of the property.
A successful shopping center is a fine balance or equation when it comes to the following issues:
- The rental for the property produced from the existing leases
- The minimization of vacancies across the property given the existing tenancy mix
- Market rent reviews that are negotiated as part of ongoing occupancy
- Lease renewals with the high value tenants that you have chosen within the mix
- Stabilization of anchor tenants and their interaction with other tenants across the property
- The renovation and refurbishment strategies that apply to the common areas, tenancies, and exterior building.
With a focus on the last point in this list, you can easily be seen that renovation and refurbishment is a critical component of retail property performance. The wear and tear factor that applies to a retail shopping center is much higher than a commercial or office building. This then says that the shopping center needs to be carefully managed when it comes to appearance, renovation, and the overall shopping experience.
People shop for just two or three reasons. Those reasons are:
- Requirements for their necessities of food, convenience, and clothing
- A feel good experience when it comes to buying the discretionary items of life
- Goods and services required to replace worn out items
A shopping center therefore has to have a mixture of tenants that satisfy all three needs. The tenancy mix within a retail property is therefore critical to ongoing customer interest. A retail property without customers will die very quickly.
Taking all of these things into account, the renovation strategy that you adopt for the Retail Property should be woven into the intentions of the tenancy mix, lease renewals, new tenants, and customer spending patterns. Here are some rules to the process:
- There will be better times of the year to renovate the property. Understand the patterns of the shopper as they apply to shopping throughout the year. These patterns will help you understand the best times to undertake renovation. It may be that renovation is only partially undertaken in different zones of the property as the year progresses.
- Prior to any renovation commencing, communicate the fact to the broader customer community and tenants. Let them know what is going on. Send flyers through the tenant customer sales activity, as well as the local mailing distribution lists.
- The renovation of the tenancy should be well publicized and well marketed. If you know the replacement tenant to move into the renovated area, put that information on to the surrounding billboards and protective hoardings.
- As part of refurbishment, you may wish to change the size of tenancies and or the type of tenancies. This therefore becomes part of the overall business plan for the property. Plan the clustering is of tenants around particular zones and traffic areas. Take special care when it comes to the entrance ways to the property given the image that renovation and refurbishment can have at the entrance way.
- It is normal for a landlord to justify the renovation of a property based on increased return. That return will normally come from an improvement in market rental. Market rental will only increase if you create more tenancies, renovate on a rising market, or bring new tenancies into the property that are of high quality and cash flow. Be very careful when it comes to the expectations of tenant and income profiles over the coming financial period after innovation. Many a landlord has made a mistake when it comes to income expectations.
All of this then says that the renovation or refurbishment can occur providing you balance the tenants, customers, leases, and seasonal sale patterns to the renovation requirement. Plan the process, and everything should do quite well.
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