When you have a retail property to lease, there are some important pieces of information that you will need to build a leasing strategy and any marketing process. Gather the facts before you take steps towards lease marketing or lease negotiation.
Retail Property performance will vary substantially from location to location and city to city. It is therefore very hard to compare retail properties in diverse locations. You must know your market in a comprehensive way. Here are some tips to help you with gathering the right facts relative to leasing any retail vacancy:
- Occupancy costs need to be assessed relative to the vacancy. Occupancy costs will include rental, outgoings, and other sundry charges that apply to leasing and the vacant space. Any tenant will question the costs and understand the viability of the business to apply in the location. Occupancy costs and the ability to make sales will vary by location in the property, and by the type of tenant. This then says that there is a difference in sales and turnover capability between tenant types; they also have differing profit margins.
- New tenants to a property will be concerned with premises location and its proximity to other successful tenants. That’s where clustering becomes an issue in a retail property. A cluster of tenants can extend the interest and purchase potential of the shopper. Understand the adjacent leases and just when they will be expiring. Is there an intention to find other tenants for those locations?
- The anchor tenant or tenants in a property are an important draw card for brining customers to the shopping centre. The anchor tenant lease should be watched for stability and longevity.
- Rental types and market rentals will vary according to location and market interest. You should check out the rentals and vacancy factors in nearby retail properties. That will help you understand the factors of attraction that apply to finding any new tenant.
- What would you consider as the typical demographic shopper profile for the property? That shopper profile will impact the tenant mix and choice of tenant. Choose your tenants wisely.
- Improvements in the tenancy area and landlords works may vary subject to the lease negotiation. Understand what the landlord is prepared to do in the premises to attract a good tenant.
- The sales averages for the property or MAT (Moving Annual Turnover) will be of interest to any new potential tenant as will the customer counts for the property. Get those facts and understand how they can provide leverage in leasing any new vacancy.
- Lease incentives could apply to attract a tenant to the property. Those lease incentives will be impacted by market conditions, other properties, vacancy rates, and current business sentiment. The lease incentives offered to a new tenant will be different and larger than those offered to a sitting tenant considering a new lease in situ.
So these factors will give you a good start to solve the leasing challenge in the property. Get the facts together before you start lease marketing and property inspections.
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.
Leasing commercial real estate is something that can provide a good buffer of commission when sales listings and actual sales have slowed. It is also the case that a successful lease transaction can lead to a future property management or sales opportunity. This then says that all top commercial real estate agents should be prepared to lease ‘quality’ local property.
Notice that I said the word ‘quality’ when it comes to property selection. Determine the property size and type that will give you the appropriate fee for a successful lease transaction. Focus locally on quality, the good landlords, and the quality tenants. A lease transaction can take a reasonable amount of time to initiate and complete. On that basis you should only focus on the good deals and the good opportunities. Let some other agent have the small things to lease that have minimal fee results.
Here are some tips for taking enquiries from tenants today when it comes to leasing new premises or relocating:
- Make sure that you’re talking to the decision maker when it comes to the particular tenant. Get the contact details and the identity of the tenant sorted before you provide too much property information.
- Ask them about the property type that they are looking for when it comes to improvements, services and amenities, location, and permitted use. Also find out about the required lease term, the rental budget, and property usage.
- The tenant’s staff and the customers interacting on the property will create certain challenges when it comes to improvements and location. Car parking is a good example and case in point.
- There are big differences when it comes to leasing office, industrial, and retail property. Create checklists for each so you can ask the relevant questions with potential tenants.
- Is the tenant coming to you today from another property location? Are they new to leasing property locally? If they know nothing about the local area, you will need to fill in the gaps when it comes to business demographics, transport, communication, local area profile, and property usage.
- If they are coming to you from another property location, they may have some timeframe to satisfy or a property disposal requirement. Ask the right questions to get the complete picture. You may even find another listing requirement with the property changeover.
- Has the tenant looked at other listings with other local property agents? It is quite likely that they have seen other listings and may have current negotiations underway through other agents. It is good to know if this is the case so you can adjust your strategy accordingly.
Don’t be too eager to take a tenant to a property. Get all of the facts together prior to the inspection process so that you don’t waste your time with the incorrect strategies or listings. Match the tenant to the property before you leave the office; qualify them. If necessary take them to a number of properties to give them a comparison of current market conditions.
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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.