Retail leasing is a special part of the property industry. With the right knowledge and skills it can offer you as an agent, real opportunity in listings and commissions. Even in the tougher times when retail trade is under some pressure, good commissions are still to be had by retail leasing specialists.
The fact of the matter is that retail leasing is so specialised that only some agents have the knowledge or the focus to do it well. Shopping centres do not disappear when retail shopping is under pressure; they just change the tenant mix and market their tenant offering more specifically and aggressively.
So what can you do to lift your focus and become a good retail leasing expert? Here are some ideas to get you started:
- Research all of the shopping centres in your region. Assess each property with due regard for age, customer type, tenant mix, market rental, and vacancy factors. You will soon see some standards and trends that apply to a successful retail property.
- Local business owners will be a very good source of opportunity and leads. Talk to all the retail tenants in other properties to see what they are doing by way of opportunity and how they view the current retail trading conditions. Some of those business owners will be looking to relocate or expand premises.
- Review the standards that apply to the tenant mix in all the local shopping centres. You will soon see the successful tenants in the mix standing out for unique offering and marketing. It is those tenants that will thrive in most economic cycles. Talk to those tenants about current retail trade and what they may be looking for by way of a new business location.
- Get to know the principles of ‘clustering’ as they apply to retail shopping centre tenant mix and strategy. Well designed retail tenant ‘clusters’ are a part of a tenant retention plan and tenant mix strategy in any shopping centre.
- Rent types will change from property type to property type and location to location. Get to know the trends of market rentals that apply to retail properties through your region and compare those rents across different properties. As part of that process, include factors of outgoing and tenant operating costs in retail shopping centres. You will soon see how tenants must trade to be successful.
- Marketing trends in a shopping centre are both at a tenant level and also at a shopping centre level. The retail message has to be consistently spread around the shopping community and region. Look at the marketing efforts that apply to retail tenants and shopping centres. Good marketing will help the profile and trade of any shopping centre.
- Incentives will shift and change for new tenants in retail premises. Any new development project will offer new and high incentives to attract tenants to their premises. Monitor the retail developments coming up in your region.
- Retail shopping centre owners and shopping centre managers will need the assistance of a retail leasing expert from time to time. It is important to know that these people know what a retail property is all about and they will expect the same from the leasing people that help them with any upcoming vacancies. Make sure you know your facts, market, and tenant mix before you talk to these people.
- Franchise groups will move around the retail properties and region. Get to know the retail franchise groups for the lease needs they may have. As part of that process you will need to know their standard terms of occupancy and property requirements.
Retail leasing is a very special part of the property industry. For those of us that want to specialise in retail, the rewards are many.
In commercial and retail property today, a tenant retention plan should be part of the services provided by specialist commercial leasing agents and property managers. The retention plan can be a value-add service for the clients that we work for.
It is no secret that the commercial and retail property investment market is under some strain. That is all due to the pressures on the local business community. This will change and improve over time. Up until then, we need to approach the property market with system and focus to help the clients that we work for. The tenant retention plan is one way of doing that.
That’s presume you have a good property to work with and the client to assist when it comes to tenant retention. Here are some tips to help you build the program and the system of retention.
- Review the property comprehensively to determine which tenants are more important to the future of the property. Those high priority tenants should receive special treatment when it comes to lease renegotiation and occupancy. The other tenants in the property may be retained although some form of priority needs to be determined.
- Review all the leases relative to all tenancies. Those leases will contain critical dates and terms and conditions that will have impact on the property function and tenancy mix. Ensure that those dates and factors are allowed for when it comes to tenant negotiation and tenant planning.
- Keep in close contact with all tenants within the building to ensure that any needs of expansion or contraction are fully understood. If you do not do this, it is quite likely that the tenant will look elsewhere to other agencies for assistance and relocation. Before long you will have a vacancy to deal with which could have been avoided?
- To formulate a good retention plan, you need a strategy of rental and lease documentation. The rents for the property can be either gross or net and should be determined based on the trends of the local property industry and the age of the property. The rents should assist the landlord to recover property operational costs (also known as outgoings). Any rent reviews applied to the leases will be based on the rental type and lease term. Strategy is everything with rental choices, so make sure you have the right information to help you with the correct rental choices.
- Lease incentives will vary throughout the year from property to property and with relevance to any new property developments coming up. Incentives will potentially attract your tenants to move elsewhere. For this very reason, your client, the property owner, needs to be quite flexible when it comes to the setting of lease incentives for existing sitting tenants. Failure to provide an incentive to a sitting tenant may very well see them move elsewhere. The cost of a vacancy in a property is significant and most inconvenient at most times.
- As part of the retention plan, review the local area with due regard for competing properties. They will have an impact on your tenancy mix and also market rental. Some of those competing properties will be influencing your tenants to move elsewhere. Be careful and respectful of these competing properties.
So these are some tips and ideas that can apply to the tenant retention program. As a specialized leasing agent, you can establish some real strategy here to help the landlord with their property momentum and property focus. When the property market is slow or tough, the value of a retention program is high. You simply need to structure your fee for service into the appropriate appointment to act.
In today’s property market, your current tenants in your tenancy mix are important to the future of the property. When you create a tenant retention plan, you can optimise the income potential for the property. That being said, a tenant retention program should be part of a professional property management and leasing service provided to landlords by agents. Good commercial property agencies provide this specialised service.
It should be said that tenant retention is not just about lifting the rent for the landlord; in fact, that is probably the wrong strategy to adopt in your plan. It is better to have a few priorities in balance so your retention plan forms a key part of the business plan for the property.
In particular, a good retention plan should include the following as goals:
- Stabilise and minimise the vacancy factor
- Create a group of prospective tenants for the vacancies in the property if and when they arise
- Support the tenant mix so that tenants can occupy in comfort and build their businesses
- Control occupancy costs for the landlord and the tenants within realistic benchmarks
- Underpin the market rental for the property which in turn can support sustained property values for the landlord
- Allow for tenant movements and property refurbishment strategies in parts of the property as planned at the beginning of the business or financial year
- Help keep tenants in occupancy for the long term and in balance with the landlords investment requirements
It should be said that a retention plan is highly important in retail property given that the stability of the tenant mix is required to keep customers coming to the property on a regular basis. Any vacancy in a property is quickly seen and will detract from the image that a successful retail property needs to set.
So how can you establish a plan of this type? Here are a few ideas to help you get started:
- Understand the supply and demand for tenancy space in the local area today. As part of that process get to know what new property developments are coming up that will impact the available space ratio.
- Consider your property as it is today and determine what refurbishment and relocation issues should be merged into your retention plan.
- Split your tenancies into high value tenants and low value tenants when it comes to the future of the property. Some of your tenants you cannot do without and everything must be done to encourage them to stay in a property.
- Anchor tenants will normally be secured on long leases. The instability or change of an anchor tenant can impact all speciality tenants in a major way. Find out when the anchor tenant lease expires and just what the anchor tenant thinks about the property today. Do they intend to stay in the property? When does their lease expire? Can they do more to work in with the other tenants in the specialty areas?
- What levels of trade exist in the retail property and what tenant types are more successful than others? This information will help you find new tenants that suit the customer needs in the property shopping centre or retail property.
- Is your property servicing a particular need? In retail property this could mean ‘convenience’ or ‘destination’ shopping. When you know what works in a property, you can do something more with it.
- Common area use will have impact on special property precincts such as ‘food courts’ and just how customers move through the property. Take a survey of those factors and form and opinion as to how successful they are now. Changes may be required to help in tenant sales and retention.
- Look at all the leases in the property and identify any leases that have market rent reviews, options, or expiry dates in the next 2 years. Those tenants or leases will be a major focus of your retention plan.
You can add to this list based on your property and the overall location. Importantly you should create a tenant retention plan that can help improve the performance of any property in any market. That is why you were engaged by the client in the first place; correct?
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.
- 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?
- 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?
- Has a customer survey been done for the property and what are the factors of property function that were identified?
- 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.
- 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.
- Is the property marketed into the local customer base and demographic? If so, is that process successful and should it be reviewed?
- 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.
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.
- 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.
- 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.
- 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.
- 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.