In a commercial or retail property today, it is the tenants that provide the backbone and the stability to income and rental performance. On that basis, you really do need to keep your tenants well in control given the prevailing market conditions and the current tenancy mix.
It is notable that a retail property can be highly volatile when it comes to tenant interaction and occupancy. Essentially all retail tenants are essentially small business people that rely on the success of the property and the overall tenancy mix to provide an opportunity for sales growth.
The tenants in a retail property will usually talk between each other on a regular basis. They therefore share information and perceptions relating to the property, the property manager, and the landlord. I go back to the point, that you must not let your tenants get out of control. Encourage good communications and build solid relationships with all of your tenants.
Here are some rules to apply to the tenant communication and connection process in commercial and retail property today:
- The tenant will be assessing their business performance continually during the year and the lease term. This then says that you should meet with your tenants on a monthly basis. This will help you when it comes to understanding shifts and changes relating to their business, customer base, or sales. If you identify any problems early, you can make the necessary adjustments to occupancy or leasing strategy.
- In a large property, it is likely that you will have one or more anchor tenants as part of the tenancy mix. The anchor tenants will usually be in occupancy for the long term with a lease document that extends over a number of years; in most cases the lease for an anchor tenant will be in excess of 10 years and will have options for lengthy renewal terms. Stay close to your anchor tenants so that you can understand how they are integrating into the overall property and any associated specialty tenants. The success of the anchor tenant will have some flow through to the specialty tenants.
- Most leases will have provisions for rent reviews and options as part of occupancy. The critical dates that apply to those lease situations should be carefully watched. Any rent review or lease renewal inside the next 12 months should be negotiated as early as possible. This then will remove the volatility from the property for the landlord.
- Every meeting or conversation with a tenant should be documented as quickly as possible. Whilst a simple situation or discussion today with a tenant may seem unimportant, it is quite common to have more complex issues arise in the future that started from some simple discussion or telephone conversation.
Get to know your tenants as part of the services that you provide for your client the landlord. In this way you can help the client understand the predictable changes that you can see with the tenancy mix and the lease profiles.
When it comes to leasing and managing a retail property today, the tenant mix strategy and analysis process becomes critical to rental stability and minimising the vacancy factor in the property. Given that this property market is under some pressure currently, you as the leasing manager or property manager need to protect your tenancy mix and the income that comes from it.
A good tenancy mix will reflect in the stability and growth of trade for the smaller tenants in the retail property or shopping centre. That being said, you still need to have the right tenants in the property that satisfy the needs of customers.
Here are some ideas to help you with improving the tenancy profile across your property.
- Maintain close business relationships with all of your tenants. When it comes to managing or leasing a retail property, you should be meeting your tenants quite regularly; that will usually be two or three times a month. Retail tenants are quite volatile and will react quickly if sales are down or the property is performing poorly.
- Understand the leases as they relate to each tenancy. That will include rent reviews, lease expiry dates, lease renewal options, make good provisions, outgoings recovery, and other critical terms and conditions. Make sure that all of these issues are correctly captured into a diary based software program that can tell you well in advance of the actions that you need to take. As a general rule, any issues that are to occur inside the next 12 months should be commence early. In this way you will be well prepared for protracted and slow negotiations if they are to occur.
- Understand what the customers are looking for when it comes to visiting your property. The best way to do this is through some survey process on the property over a period of two weeks each quarter. You will then get a reasonable idea of shopping needs, and customer requirements. You will also identify the weaknesses in the property that can be addressed before they have impact on sales. It is a fact that retail shopping patterns are changing, however they will not disappear. You simply need to adjust your tenancy mix over time to suit the requirements of today’s trends in retail marketing.
- Develop a series of clusters within your tenancy mix. These clusters should be comprised of specially selected tenants that complement the retail offering of each tenant nearby. A customer can then move from one shop to another as they purchase goods. You can also choose tenancies for your cluster that retain the customer’s interest in the property and the location. A coffee type tenant in a cluster will extend the shopping potential of the customer in the cluster zone.
- Within the property you are likely to have one or more anchor tenants. They should have been chosen for their relevancy to the surrounding customer demographic. You can then position the specialty tenants and the clusters based on the location of the anchor tenants.
- It is interesting to note the different shopping habits between males and females. Generally speaking the shopping patterns of females is far more complex to that of males. A female spend far more time in the property moving from shop to shop and looking at many different things. A male will generally go to the property to purchase one or two things and then leave.
It is a fact that customers expect a vibrant property when they visit. This will include presentation, other customers, and great tenants. For all of these reasons, you will need to balance your tenancy mix accordingly.
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:
- 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.
- 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.
- 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.
- 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.
- 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.
- 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.
- Sales numbers across all tenancies will help you decide just who is successful in trading and who is not.
- 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.
In commercial or retail property leasing, it is important that you are prepared for the property inspections that you take with prospects. You only have a short time to create the interest of the tenant prospect and move them to a lease offer.
Here are some tips from our Newsletter.
So what is the focus of the leasing inspection? It should be to create the interest of the tenant and remove any questions that they may have regards the property. To do this you have to be prepared.
Here are some leasing tools that you can use as part of the leasing inspection of vacant premises:
- Be aware of the competing properties in the local area. The prospective tenant is bound to have seen those properties with other agents or at least be aware of the space availability and the asking rent. You will have to know the differences in properties and why one rent is more relevant than another.
- The asking rents for your property should be in parity to the market rents locally for properties of similar type. Have you checked that out? Is your asking rent within the reality of the current market rents? How will you pitch the rent requirement to the tenant when they challenge you? How can you sell that rent package? You will need to have your answers ready.
- Take some measurement tools to the property. That will usually be a laser measurement tool to calculate distances, plus a measurement ‘wheel’ that you can use to walk around the property. It is important that you do not certify areas and distances as you are not a surveyor, however you can give approximations to the tenant so they know approximately what factors exist in the property.
- Always have a camera with you to take photos of relevant parts of the property. It is remarkable where those photos will come in handy in later conversation with tenants.
- Take a list of services and amenities in the property, together with fixed improvements that may be relevant and important to tenants in occupation. Some tenants are very interested in communications and power capability in the premises. Ensure that you have the information at your fingertips.
- When it comes to inspecting office premises, the tenants like to know about the finishes that are required in any fitout changes. If your property is a modern property with quality finishes, there will be some guidelines to apply here when it comes to negotiating tenant fitout design and standards. Get details of these things from the property manager or landlord.
- The plans for the property will show as built factors relating to structure, electrical, air conditioning, hydraulic, and lighting. The plans will also show you where the riser is in the building for the tenant to tap into the property services.
- Take notes of all representations made and comments given in a leasing inspection. Those comments could become critical in the ongoing lease negotiations.
- Lastly you should have a reasonable knowledge of the outgoings to be paid by the tenant in the property. Those outgoings will be impacted by the type of lease to be used. Those outgoings should be in parity with other properties of similar size and type in the local area.
When you are fully prepared, the leasing process and inspection becomes much easier. Top leasing agents are always prepared to give the right information in the property leasing inspection.
You can get more tips like this in our Newsletter.
When you look at a commercial or retail property for the first time, it is important to review the leases and the tenant mix. In a property with multiple tenants it can be a complex and daunting task. In such case the only way to really get the job done well is to use a checklist approach. When you follow a list process you can go through many leases and tenant situations with ease. Here are some tips from our Newsletter.
So why would you want to check the tenant mix and the leases? You should be looking for occupancy issues that are relevant to each tenant and ensuring that those occupancy issues agree with what you are seeing in the property.
Here are some ideas to help you establish your lease and tenant mix review process. You can add to this list given your property type and location.
- Get the names of the tenants and make sure that they agree with the tenant positioning that you have observed in the property. What you are looking for is any situations of unauthorised or undocumented occupancy. As part of that process you could find some sub-tenants, assignments of lease, lease alterations, and many other changes within the property. They will all need to be checked out. Whatever issue you find, ask for the supporting documentation as proof of the current situation.
- Ensure that the lease description corresponds to the tenancy location and the permitted use for the premises. Is the tenant using the premises in accordance with the lease terms and conditions? When in doubt go to the lease for the details. Any sub-tenant or assignment situation should also be in compliance to the terms of the lease.
- Review all the leases for critical dates. They are the dates relating to things that have to be done between the tenant and the landlord. Most particularly they are rent reviews, options, lease expiry dates, renovation provisions, and insurance obligations.
- Check out the outgoings that should be paid under the terms of the lease for each tenant. Make sure that all outgoings charges and payments are in accordance with the leases in all respects.
- Make sure that the current rents for each tenant are in balance and accurate for the lease for each tenant. Ask about any arrears that could be outstanding and why that is the case.
- In a property with a large number of tenants it pays to look at how the overall property performs with the tenants in current locations. Look at the tenant clusters to see how they work. Some of those clusters may be impacted by relocations or renovations in the property.
The reviewing of the tenant mix is a hands-on issue that should be personally undertaken. It has to be done with great accuracy before you do anything else in the property. Learn to read and interpret property leases. You will also find that a checklist will help keep you on track.
Like to know more about leases and tenant mix? You can get more detail in our Newsletter.