Commercial Real Estate Brokers – How to Improve a Retail Tenant Mix

In any retail property or shopping centre a specific tenant mix strategy is essential to encourage sales and trade for the tenants, whilst also underpinning retail property performance for the landlord.  The retail plan or strategy helps with key issues such as lease negotiation, tenant selection, retail tenant clustering, and occupancy targets.

Any retail property should have a tenant mix plan as part of the annual property performance scheme.  Something has to draw customers to the property in an ongoing way.  That is where the plan and the mix become important in the leasing process.

The Base Strategy

So, in doing this a number of things come together to make things work successfully for both the tenants and the landlord.  You could say that a successful retail property is a product of a finely balance landlord priorities, tenant placement, and tenant occupancy relationship; the retail leasing strategy is at the centre of all of that.

So what are the elements of a tenant plan for the landlords that you work with?  How does the mix become important in the performance of the shopping centre in your location?  The suggestion here is that all the tenants and leases within a property should be looked at in a ‘global’ fashion and compared to property market conditions and opportunities.

The Vacancy Factors?

If a vacancy exists in the property, then the ideal tenant to fill the vacancy should be located into the cluster of other tenants within that property precinct.  That is why you do a mix review to answer questions like these below:

  • What are customers looking for in the property?
  • How many tenants do you have in each of the retail segments? (e.g. fashion, food, sports, travel, etc.)
  • Given the retail segments in the property, what are the most successful and why is that?
  • Understanding the sales numbers from the property, what are the successful rental generators by tenant type?
  • What will be the ideal lease duration in that location?
  • What market rents should you ask for the target tenant type and location?

When you know the answers to these questions then you can move ahead into the specific decisions impacting the lease negotiation in any shop vacancy that you may have. You can then improve the retail tenant mix.  Those questions to put you on track would include:

  1. LEASE DURATIONS: Given the other tenants in the vacancy proximity, what will be the lease duration and expiry date that will not overlap or complicate other vacancies in the same general area of the property?
  2. RENTAL ESCALATIONS AND OPTIONS: What will be the standards of rent reviews and lease options to be set in seeking a new tenant? In most cases you will want these issues to favour the landlord and their investment targets.
  3. THE BEST RENTAL TYPE: Will you need a net or gross rent for the location? Your decision will impact incentives and outgoings recoveries for leasing the space.
  4. TENANT MARKETING STRATEGY: How will you market the space? Your targeted group of tenants will require a specific marketing approach; generally that will be a mixture of direct mail, cold calling, door knocking, and industry publications.  You can also talk to other tenants in the property in case a clear match of new tenant can be encouraged through existing contacts.

So there are some things that can be done here with any single vacancy in a retail property.  The tenant mix becomes an important factor in property performance and optimisation.

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.