Hard to Beat Tenant Mix Strategies in Retail Property Today

In retail property and shopping centres you really do need to know your tenant mix and its volatility.  A good tenant mix and tenant retention plan will help strengthen your property income, market rental, and capital value of the property.

So if you as a specialist real estate agent take on a leasing appointment or property management appointment to improve the tenant mix in a property, there are some things to consider; you do this as part of the services and processes that you put in place.

Here are some strategies to handle the tenant issues in a retail property:

  1. Review all your leases at the very start. You must know where all the income and tenant weaknesses are or could be.  What you are looking for initially is rent reviews (current and coming up), options for renewal, lease expires, refurbishment requirements, and permitted uses.  Many of these things will involve critical dates in one form or another.  Get those critical dates locked into an action plan and talk to the landlord accordingly.
  2. Assess the market rental that applies to the property today and how that compares to the prevailing market conditions and other properties that are comparable.
  3. Assess the outgoings for the property and do an expenditure assessment of the property for this budget year.  Your tenant rental structure will need to provide strategies in setting the right rents.
  4. Anchor tenants and specialty tenants in the property should all be looked at. Some tenants will be more essential to the property than others.  These decisions will be set in your retention plan.  Any leases that are coming to an end with redundant tenants will require a replacement program to support and protect the tenant changeover.
  5. Customer needs can be assessed with a regular customer survey.  Each quarter in the shopping centre you can survey both the customers and the tenants as to what they are wanting in the property and are seeing with shopping needs.
  6. Review competing properties so you know the current vacancy factor and how it relates to your property.  Age and location of competing properties will also impact your assessment.
  7. Sales numbers across all tenancies will help you decide just who is successful in trading and who is not.
  8. Seasonal marketing for the tenants will change as will the customer door counts across the selling week and season.  Understand the patterns of trade as they apply to the tenant type and the location.

You could say that tenant retention and tenant mix strategies are the more specialised part of the property and agency industry.  That being said there is some good commissions and money to be had by property specialists that really know their market and can provide a comprehensive service to clients.

Shopping Centre Leasing Tips for a Better Tenant Mix

When you as a retail leasing agent are to lease a retail property, the terms and conditions of the negotiation will involve more things than a standard office or industrial property to lease.  That is because the typical retail business will have factors of trade and opportunity to consider.

The typical tenant will want to know all the factors of the property before the lease negotiation will become real and relevant.

You will need to tell them about the ‘big’ property issues that impact a retail tenant including:

  • How the property operates and how it is maintained
  • The prevailing vacancy factor in the property and how it is likely to change
  • The profiles and trade of the existing tenants (suitably generalised for confidentiality)
  • Who the landlord is and what their targets are
  • How the anchor tenant (or tenants) benefits the property
  • How the existing tenants specialise and attract customers to the property
  • What the levels of asking rent and outgoings are for the property
  • Where the competing properties are and how they impact your property in the sense of trade and customers

Could a poorly managed retail property with a landlord that is income focused, ‘wreck’ a retail shopping centre tenant mix?  The answer is certainly ‘yes’.   Some landlords do not have a real appreciation of the retail trade process and priorities.   Retail property investment, leasing, and management are really special parts of the property industry; they are not for ‘first time’ investors.

As a specialist retail leasing agent you could find some ‘retail landlords’ are quite inexperienced when it comes to the performance of a retail property.  If the landlord or property investor has just ‘graduated’ from industrial or office property investment, they will require some education when it comes to the dynamics and functions of a retail property.

Links and Relationships

In retail property, everything is linked, and a weak link in the chain of relationships can threaten the success of the property.  Here are some of those relationships.

  1. The anchor tenant attracts customers to the property.  What are the intentions of the anchor tenant?  How are they trading now?  How do they interact with the specialty tenants?
  2. The speciality tenants support and grow the attractive nature of the retail property to the customer base.  Are those speciality tenants successful now?  Are there any problems in the tenant mix that should be addressed?
  3. Has a customer survey been done for the property and what are the factors of property function that were identified?
  4. The trade or success of the tenants will underpin the level and sustainability of the market rental for the property.  The landlord for the property should encourage the property profile and marketing processes so the tenants can be successful.
  5. The well managed outgoings for the property are a part of the tenants occupancy cost.  The outgoings should support sustained successful trade and not become a burden on a struggling tenant mix.
  6. Is the property marketed into the local customer base and demographic?  If so, is that process successful and should it be reviewed?
  7. How the property is maintained now, and is there any need for property change or upgrade?  That will include expansion, contraction, and refurbishment.

The proprietor of the business entering the property as a tenant is going to need to understand the functions of the property, the landlord, and the customer factors of the local area.   Shopping centres are very unique, and the way they are managed and operated will have a great impact on the customer base and the tenant mix.

Retail Leasing Strategies for Commercial Property Agents

When you work on retail property as an agent, you will soon see the need to specialise locally.  There is a lot of difference in property performance when you compare retail property to office property and industrial property.  The factors that drive rental, lease enquiry, and property performance are totally different.

If you choose to be a retail leasing specialist, it pays to have a comprehensive knowledge of the factors that drive retail property sales, and retail property performance.  All of these factors are linked and impact the activities of the tenants, the tenancy mix, the landlord, and the property manager.

Retail leasing strategies today will vary from property type to property type and location to location.  They are however underpinned by local market awareness.  To help you with the local market awareness here are some tips and ideas that you can merge into your business activities.

  1. Get to know all of the franchise groups that are located in your region or those that could be located in your region.  Franchise groups are greatly involved with retail property leasing and property performance.  They bring a brand to the property that can have significant benefit to the overall tenancy mix.  That being said, they have a specific need when it comes to finding the right property and occupying that property.  In many cases they will bring a specific lease to the landlord as part of the lease negotiation.  In those circumstances, it pays for the landlord to have an experienced property solicitor to help them with the adjustment of the franchise lease document to make it relative to the subject property.
  2. The competing retail properties in your local area will always have factors of change.  That will include expansion, contraction, renovation, and refurbishment.  All of these things can shift the tenancy mix and drive tenants to other locations.  That will have impact on your particular subject property.  As a specialist in the area, keep on top of the changes to the local area in both demographics and property availability.
  3. Most shopping centres will have one or more anchor tenants as part of the tenancy mix.  Anchor tenants are very special when it comes to the future of the property and the attraction of specialty tenants to the shopping centre.  On that basis, it pays to connect with the relevant and successful anchor tenants that could occupy medium to large retail properties.  Anchor tenants may be department stores, supermarkets, or hardware stores.  Given the size of the tenancy that they would occupy, the rental terms and conditions will be significantly different in circumstances to those that are offered to the smaller specialty tenants.  In exchange for these differences, you would normally negotiate an extensive and comprehensive lease with the anchor tenant over a long lease term.  That being said, the anchor tenant must be the tenant that you require to match the needs of the local shopping demographics and the tenancy mix.
  4. When it comes to retail property, there will always be alternatives of rental, lease terms, and occupancy conditions.  They will include rental levels, rental types, fitout controls, refurbishment strategies, relocation strategies, and landlord investment requirements.  Get to know the activities of all competing properties so you can bring that information into those retail properties owned by your clients.

A property person that specializes in retail leasing will be in regular contact with the local business community.  It is this business community that provides the specialty tenants for your properties.  As part of that process, you should also be contacting tenants in other competing properties in case they need to change location or expand their particular business.

Commercial Property Managers – End of Month Reporting Tips to Landlords

When it comes to managing a commercial or retail property, the landlords that you work with will have specific needs and requirements for the monthly report.  In the monthly report certain things will need to be monitored and tracked to ensure that errors and omissions do not ‘slip through the cracks’.

Many a property manager has suffered the consequences of overlooking critical dates and critical issues in a particular property that they manage.  For this very reason, the end of month report can be a very efficient way of monitoring current and future activity within the particular property.

Gone are the days of simply giving the client a financial report at month end with little commentary as part of the property management process.

Landlords expect property managers to provide a comprehensive and detailed property management process.  It is not simply a matter of collecting the rent and chasing arrears.  There are many more things to do when it comes to commercial and retail property performance.

Here are some tips and ideas that can be incorporated into your monthly report as it applies to your property management clients and landlords.

  1. The property income is always of concern to the landlord given that they need to match the income to their financial obligations and investment targets.  The income should therefore be tracked on a daily basis to ensure that lease arrears are identified as soon as they occur.  Some tenants will frequently stretch the required lease payments and make a late payment.  The reality of the situation is that any late rental payment is in fact a default under the terms of the lease.  The property manager needs to see this late payment of rental as soon as it occurs, and take the necessary action in accordance with the instructions that the landlord provides.  As part of the monthly report, give the landlord a summary of income paid, income charged, and defaulting tenants.  Always seek instructions from the landlord regards these defaulting tenants and the required processes of income recovery.  A defaulting tenant can sometimes be converted back to ‘lease compliance’.
  2. The expenditure in a property will be both controlled and uncontrolled depending on the expenditure type.  There are also some accounts that are ‘seasonal’ and quite large; for example they will usually be municipal rates and taxes, insurance, and energy costs.  The property should always have sufficient funds to pay for these large and significant outgoings.  For this very reason, a complex property with a lot of tenants will usually have an expenditure budget reflecting the timing of these outgoings activities and costs.  The property manager should track the expenditure activity monthly to the budget, so that they know how much money they should hold back from the landlord as part of the end of month income remittance.  It can be very embarrassing to all concerned when the property runs out of money at month end and the electricity supply is turned off to the building.
  3. The maintenance in a property will shift and change from time to time.  Some maintenance in a property will be planned as part of the overall maintenance budget whilst others will occur as a result of unexpected breakdowns and repairs.  The maintenance of the property should feature in the expenditure budget as part of the annual property business plan.  At the end of each month the maintenance routines and the maintenance costs should be tracked against the existing and approved property budget.
  4. The tenancy mix and the existing leases within the property will have lease factors to be tracked.  They will include rental changes, rent reviews, lease options, make-good requirements, insurance obligations, and renovation strategies.  The list of possible actions and critical dates spinning out of the lease are quite large.  When you take on a new property always review the leases comprehensively thereby defining any future critical dates that will require action and momentum at a particular time.
  5. The cash flow for the property will be optimized through a series of rent reviews, leasing strategies, new tenancy placements, and vacancy minimisation.  The property manager should be managing these issues in a productive and comprehensive way.  In doing this the property manager should be helping the landlord minimise cash flow disruption and instability.
  6. Lastly it should be said that the local market property conditions should be detailed in your monthly property management report.  In this way the landlord can be completely appraised of the changes to the property market and the factors of supply and demand.  When the landlord is briefed in this way, they understand the pressures of lease negotiation and tenancy placement.  This knowledge will help when it comes to finding tenants and negotiating new leases.

This list is not finite; however it gives you a good idea of the complexity of the monthly property management report that can be created for your clients.

Take a proactive position when it comes to managing your particular property portfolio for your clients, and provide detailed comprehensive monthly reports.  That will allow you to maintain and grow your property portfolio over time.  It will also show your professionalism as an expert commercial or retail property manager.

Retail Shopping Centre Managers – Anchor Tenant Leasing Strategies

In larger retail properties today, you need a quality anchor tenant that is location based.  They have to be closely aligned to the local community and the demographics of the area.  For this reason, leasing managers and property managers should select anchor tenants well and ensure that the anchor tenants will build a customer base into the local area without difficulty.

A strong anchor tenant will encourage more shoppers to a retail property and help the specialty tenants with their trade and sales.  The link between the anchor tenant and the property is therefore high.

To help the anchor tenant with this close alliance with the property, consider the following factors:

  1. The anchor tenant should be encouraged to market their business into the local area.  It is wise to have some guidelines established for that process to occur.  The anchor tenant’s lease can set out some guidelines for that.
  2. The specialty tenants should join with the anchor tenant in a regular marketing effort to promote the property.  The specialty tenants can have a clause in their lease that requires them to pay a percentage of their rent to the marketing fund of the property.  The property manager should administer the marketing effort on behalf of the tenants and the landlord.
  3. The lease for the anchor tenant will need to be a lengthy period of time to give the property some stability over the long term.
  4. Look at how the access to the anchor tenancy is obtained by customers and how that access can incorporate involvement or profiling of the speciality tenants in the property.  Follow the ‘foot traffic’ to see what marketing effort can be established in the ‘corridor’ or pathway to the anchor tenant entry.
  5. The pylon sign on the property will be critical to the image and exposure for all tenants.  The anchor tenant will feature in the signage and then all specialty tenants should be on the same pylon sign.  Look at the pylon sign placement to passing vehicle traffic and pedestrians.
  6. If the local area is serviced by public transport, get some marketing material and posters into the transport systems and drop off points.
  7. Understand just how tenants access the property and how long they stay in the property.  What do they buy when they visit?  These questions will help you understand what the tenant mix requires to strengthen trade for the anchor tenant and the specialty tenants.
  8. Get marketing brochures into the local community and give special attention to seasonal sales or celebrations.  The community will get involved with your property if you create the right atmosphere.

There is a fine balance between the tenants in the property, the community, and the landlord.  The property manager or leasing manager for the property has to bring all of that together.

Shopping Centre Managers – How to Do Your Monthly Report for the Landlord

When you manage a retail property there are a lot of things going on that need control and communication back to the landlord.  That is where a good reporting system will help you greatly as a centre manager.

It is no secret that the retail property market can be a challenge at the moment with a significant shift between retail sales on the internet, versus retail sales in the shop.  It is the retailer that suffers the downturn in trade, and as a consequence they must revisit their product and service offering.  If they cannot make a go of it, then a distressed tenant soon turns into a vacant tenancy.  The landlord then suffers in loss of income.

Today more than ever before there is a strong bond between tenants, customer, landlord, and property manager.  The balance and success of a shopping centre sits in between all of them.  They all have a vested interest to make a retail property work and perform as an investment.

Whilst it is nice to have a tenant and a lease for retail shop premises, a vacant tenancy is a waste of time and energy for all concerned.  It is in the landlord’s best interest to help a tenant succeed in a retail shopping centre.  The link between the two parties is the property manager.  A good property manager knows how to help a property thrive and grow as an investment; they also know how to assist a distressed tenant get back on track with sales and customer numbers.

To keep the landlord fully briefed on the performance of a retail property, the monthly reporting system needs to be comprehensive and advanced.  Here are some of the big topics to help you structure and provide a monthly report to your landlord client.

  1. Tenant mix activity should always be tracked.  That will include the changes in a property and the upcoming lease activities.
  2. Lease rent reviews and lease options coming up should be planned and actioned early.  Do not leave these things to the last minute.  Many a landlord or property manager has been taken by surprise when it comes to a lease document that they did not fully understand.
  3. Tenant renovation will always be a priority in retail shopping and shopping centres.  A shop that looks poorly for any reason will deter customers not just for that particular tenant, but also for those other tenants that are nearby.
  4. Maintenance in the property will occur for both planned and unexpected events.  You must report on maintenance budget activity and results each month.
  5. Sales by tenant category and by tenant will give the landlord an indication of just what tenants are successful and those that are struggling.  Trend these numbers in a graph so you can see what is going on in the property.
  6. Vacancy marketing will always be important to minimise the impact of loss of rent.  Any existing or upcoming vacancy should be comprehensively marketed to attract new tenants to the property.
  7. Centre marketing to the local community will help with sales for each tenant.  There should be a marketing fund for this process.  The tenants lease should allow contribution by each tenant to the marketing fund.
  8. Income and expenditure will be updated each month for the property.  In an ideal world the income and expenditure should track closely to budget; that being said, there will always be challenges that need resolve and management.

If you manage larger retail properties, then this list will get larger and deeper.   Control will allow you as the property manager to keep the property on track as a retail property investment.