A Retail Shopping Centre Story Worth Sharing

retail shopping mall

Recently I was approached to look at a large retail shopping centre in a suburban location; specifically, to resolve leasing issues and vacancy problems.  The property was some 30 years old, and the current owners were consistently ‘aggressive’ in setting higher rentals and protracted lease negotiations.

 

Interestingly, the landlords, in this case, were blaming everyone but themselves for poor investment performance.  Their properties were in decline.

 

Some landlords can’t see the ‘wood for the trees’ if you know what I mean.  The tenant mix, in this case, was being destroyed.

 

shopping centre cart
Putting the pieces together in a shopping centre.

 

A fair rent is a fair market-based rent

 

Now, don’t get me wrong here; a fair rent is always a reasonable charge to raise for shop occupancy.  Its when things go too far the other way with the landlord escalated higher rents that the retailers of the property feel the impact.

 

It is very hard for a retailer (which is usually and simply a small business) to walk away from something that they have put tens of thousands of dollars into and hundreds of hours of personal work.

 

Many tenants try to live with the ‘financial pain’ of high retail rentals in the hope that things could get better with a lift in sales.  If, however, the landlord is not supporting the promotion and presentation of the property, then everything gets quite difficult.  The customers, in this case, were not coming back to produce that ‘boost’ in sales.

 

The fixed percentage increases in rent reviews today can also be a problem.   The days are gone of 5% pa increases although some landlords would like to achieve that.   In this changing retail property market, 3% is commonly still too high, and CPI is a fairer equation for all.

 

It is better for a landlord to take a lesser rental from a tenant and or the tenant mix, and thereby achieve occupancy stability for the long term.  That’s where the landlord and tenant partnership is so important. 

 

When I look at any retail property, I like to investigate all the factors of the property before I recommend anything.  To understand the basic facts in this particular situation, I asked plenty of questions and talked to the landlord, plus the customers and tenants to the property.

 

people walking in shopping mall
Know what shoppers are looking for

 

What did I find out?

 

I found out that the landlord had owned the property for some ten plus years and over time they were slowly ‘killing’ the tenant mix through pushing rents up to the detriment of the existing tenants and their ability to trade.  This property was one of a few shopping centres owned by the ‘family’ as part of an investment portfolio.  The landlord with a large portfolio had no great financial pressure, but the tenants had plenty.

 

In this case, and because of the high rents, the existing tenants had lost their ability to produce a reasonable net income from their businesses.  The downward spiral in the tenant mix was well underway; tenants were talking between themselves, and they were consistently unhappy.   The landlord at the same time (not wanting to spend money on the maintenance of the asset) was allowing the property presentation to decline.   The customers could see all that happening in degraded property presentation; customer interest in the property was also in decline.  The auto tellers (ATM’s) were looking to pull out from occupancy at lease end.  When that happens, you do have some real proof that a property is in decline with customer interest.

 

It is no secret that the retail part of the property market is changing; landlords need to be careful as they seek to improve property performance.  Retail shopping doesn’t go away; it just changes.   Today there is a shift in customer shopping patterns due to online sales and the impact of internet products and services.  Shopping centre owners should respect the changing property segment for its complexity, strengths, and weaknesses.  A good quality retail property will be either a ‘destination property’ or a ‘convenience centre’.  There is no ‘middle ground’.

 

man shopping for fruit
Investigate the retail offering.

 

In this Case?

 

So, what was the outcome in this case with this shopping centre?  This is what I found out after investigating the property:

  • High and escalating vacancy factors
  • Low levels of new tenant enquiry
  • Tenants struggling to exist and pay rent on lease rent
  • An increasing level of ‘pop up’ tenants to fill vacancies at lower rents
  • Solid levels of competition in the local area from other retail properties
  • Negligible local area marketing to boost retail sales and customer interest
  • Poor tenant relations with the landlord – lack of respect and trust on both sides
  • Uncompleted lease renewal negotiations with sitting tenants
  • Low levels of property maintenance and poor presentation factors in the common areas
  • A declining interest from customers locally in the property
  • A supermarket that was not improving sales and was worried about the future of growth
  • A landlord that was failing to get involved with the anchor tenant and its performance

What would you do with a property like this?  Would you fix it, or would you let things ‘stagnate’?

 

lady holding up hand
Making decisions when required

 

So What Did I Do?

 

I chose to walk away from getting involved.  A good move I think; there no point in wasting proven and intelligent investment strategies on property owners that continue to destroy a shopping centre and the tenant mix for the sake of aggressive rental payments.

 

What will happen now? It will become more of a ‘distressed asset’, and eventually, most of the tenants will probably leave.  Will the landlord soften their stance on rents?  They will likely have no choice if they want some reasonable chance of a property ‘turn-around’.

 

There is a key message here for shopping centre owners.  Respect the important balance between customer engagement, leasing, property maintenance, the tenant mix, retail sales, property marketing, and anchor tenant support.   That is the retail shopping centre equation to carefully nurture and grow if you want a successful shopping centre as an investment.  Success is possible for any property investor if all elements of retail property performance are ‘balanced’.

 

The Secrets to Choosing an Anchor Tenant for a Retail Shopping Centre

shopping centre mall

Have you ever thought about what makes a shopping centre in Brisbane or Queensland so successful as an investment when other similar properties nearby are struggling?

 

There are generally a few things in the answer, including the landlord’s commitment to the property function and appearance, the tenant mix, the marketing program for the property and tenants, elements of community involvement, ongoing customer attraction, and the anchor tenant.

 

You could say that it is a special ‘retail formula’.   It is a unique blueprint to balance and maintain; shopping centre managers and leasing specialists in South East  Queensland know all too well the importance of the equation and the balance of it.  Neglect one part of it and weaknesses can develop.  A retail property can ‘degrade’ very quickly.

 

people in retail shopping mall

 

The Anchor Tenant Choice and Review

 

So, let’s look at the anchor tenant part of the equation.  When it comes to the performance of a retail property, the anchor tenant selection and success will be fundamental to the performance of the property.  On that basis, you should choose your anchor tenant with a view to the future of not just the property but also the community of customers.

 

The Leasing Review

 

Key factors to bring into the leasing decision in selecting an anchor tenant will be:

  • Required lease term (generally long)
  • Option term (also generally long)
  • Base rental or turnover rent provisions
  • The anchor tenant match to the customer demographic
  • Rent review alternatives over the lease duration
  • Marketing initiatives of the anchor tenant into the local area
  • Fit out designs and refurbishment covenants in the lease
  • Branding match to the property and signage for the anchor tenant
  • The integration of the anchor tenant into the property tenant mix
  • The lead time to exercise the lease option for the anchor tenant
  • Levels of trade expected and required for the success of the tenant

 

Anchor tenants can bring stability to your market rent levels and create lower vacancy factors.  A retail property with a good anchor tenant will support the specialty stores and underpin the opportunity of retail trade for everyone.

 

So, a landlord should work closely with an anchor tenant in occupancy to ensure support and involvement in multiple ways.

 

retail shopping mall

 

Things to Check When Purchasing a Retail Shopping Centre

 

If you are looking to purchase an existing shopping centre with an established anchor tenant, ask these things as part of the due diligence process and lease document review:

  1. The duration of the lease and the options
  2. Critical lease dates relating to lease occupancy and enforcement
  3. The levels of sales for the anchor tenant over the last 3 years
  4. The marketing plans and campaigns underway at the property and for the anchor tenant
  5. The dynamics of the anchor tenant and the specialty stores
  6. The customer facts and figures relating to retail trading days of the week, the patterns to the visitor numbers to the property, and the seasonal sales throughout the year.

 

Information like this can help you understand the complete ‘dynamics’ of the retail property and its successes as an investment.  Look for the strengths and weaknesses in every situation with retail trade, the tenant mix, and the property performance.

 

Landlords – The Secrets to Finding Commercial Tenants Faster

top of city buildings

When your property becomes vacant it can be a real worry for any landlord.  In some locations, it can take some time to find a new and willing tenant that has the integrity and business stability to occupy your property.

That leasing and vacancy process means loss of rent, loss of outgoings recovery, incentive costs, legal documentation costs, commissions in leasing, and the list goes on.   A good commercial real estate leasing agent that has a solid coverage of the local property market can be of great value to a landlord today.

So, what can you do as a landlord with your investment properties?  You must stay ahead of the vacancy problem and have a good strategy in place to minimise the vacancy downtime. 

Even in tough markets, vacant tenancies do lease, it’s just that it takes more time and effort on the part of the agent and or the landlord to promote and target the property to the right prospective tenants.

 

office floor corridor
Study the alternatives of leasing vacant space and know the local property market.

What is a Leasing Tenant Retention Plan?

A ‘tenant retention plan’ is a good solution for most investment properties.  In a ‘retention plan’, specific strategies are created such as:

  • Closer connections with existing tenants to ensure full awareness of leasing pressures and business changes.
  • Creative lease transactions that are designed to match the overall mix of the property whilst avoiding mass or multiple expiry problems with several tenants or premises at the same time.
  • Targeted tenant profiles of local businesses to simplify the leasing process when a vacancy is known to be happening or upcoming.
  • Direct marketing of vacant space early, so that enquiry is optimized for vacancies at the right time.
  • Incentive packages that are structured to encourage existing tenants to stay in a property. There are different incentives available, and a package or alternative packages can be created to suit investment targets in the property.
  • A forward-looking plan or matrix assessment of all tenants in an investment property to allow lease expiry awareness and early negotiation. That matrix is typically a forward-looking assessment of occupancy looking out to 18 months from the current time.
  • Leases that are matched to the investment targets of the landlord and the valuation requirements of the property financiers.

 

As a landlord, and if you have premises to lease, do not make your choice of leasing agent based on discounted commissions, lower fees, low marketing costs, open listing, or friendship.

None of these things will really help you lease your vacant tenancy any faster.  The result is an expensive and protracted vacant tenancy that is ‘eating its head off’ financially in vacancy downtime and costs.  Your losses will far exceed any gains you think you may get from savings on commissions or fees.

So, do you want a  top agent to focus on your leasing requirements?  Expect listing exclusivity and a commitment to paying some marketing funds to promote your vacancy.  There is no better way to do things.

 

office property foyer
Every vacancy needs a comprehensive leasing strategy.

Ask About Strategies for Leasing

When you need an experienced real estate agent to help you lease a retail or commercial property or any property for that matter, ask them to give you their strategy on:

  1. Advertising to a target market that is relevant to the vacant property
  2. Internet listing initiatives to attract more enquiry
  3. Track record leasing similar local property
  4. Lease terms and conditions that attract tenant enquiry
  5. Database email circulation of your vacant property for lease
  6. Cold calling the business community to attract enquiry from the right business owners
  7. Street by street canvassing of businesses for greater information about your vacant tenancy
  8. Signage initiatives that show the vacancy to its true advantage
  9. Target marketing the property locally
  10. Inspection strategies designed for your property

Such a short list and some yet critical points that are so important when you are leasing property or seeking to resolve vacancies.  You can do so much with these things from a leasing perspective providing your commercial real estate agent supports the process and provides the depth of experience to get the job done.  Taking action on a  strategic leasing plan is so important.

One final comment and going back to one key point above; ‘open’ type listings in a tough market are also a waste of time for the average landlord.  The numerous agents that have your property listed as part of an ‘open listing’ are not really marketing your property intensely.  It is what is called a ‘list and hope’ process when it comes to open listings.  It doesn’t work.

 

foyer of office property with leather chairs
There are many ways to assess a leasing requirement in investment property.

Also Ask About Proven Experience and Market Coverage

If you want to lease your property in the shortest possible time, find an agent that has real and proven experience in the local area using the 8 points above.

Ask questions about what the agent will do for you.  Get them to show you how they will attract the market to your property.  Make them win your leasing business.  Good real estate agents will do this and give you the confidence that you expect as a property investor.

I go back to the point that leasing a commercial or retail property is not about getting discounts from the chosen agent.  It is all about market coverage and strategic approaches to the right local businesses.  A timely lease agreement is more important than any ‘discount’.

 

office desks and chairs
Get your vacancies under control with a leasing plan and target marketing campaign.

Landlords – Why You Need an Experienced Commercial Property Manager for Your Investment Property

city buildings

Many property owners in Brisbane and Queensland think that they can manage their own property and some invariably do, albeit at times poorly.  It’s a common problem.  There are just too many things in property performance today for most situations of owner management to be completely successful.

Many owners make property management choices based on cost first and legality or practicality second; that then leads to risk, redundancy, and low-grade investment performance.

Are the cost savings in self-management worth the trouble for a landlord?  Perhaps in a simple single tenancy management, the owner self-management process might work; as however, a property becomes more complex with several occupants and or leases, a professional property manager is a better solution in most cases.

calculator on table
Know your numbers and choices in commercial property management.

Select the Right Property Manager with Relevant Experience

There are plenty of agents around with property managers on staff, however that is where another problem evolves; the experience of the property manager may not be relevant or deep enough for the particular property type and or client.

Let’s take things a bit further.  There are always challenges in commercial and retail property management.  Think about these things for starters:

  • Negotiations with difficult tenants on leasing and occupancy matters
  • The gathering of comparable market evidence from other leased properties
  • Strategic tenant retention and lease negotiation
  • Vacancy marketing to reduce the problems of loss of rent
  • There are differences to consider in office, industrial, and retail property management
business man OK sign
Know your property choices in investment performance.

Local Property Market Information

There are other things to add to the list. Rarely will a property owner have enough exposure to the local property market to really understand what comparable situations, vacancies, rents, and prices are currently.

The property owner can also make mistakes with lease and tenant matters simply because of a lack of understanding when it comes to up to date lease interpretation, and full property market information.

 

Market Intelligence Needed

Here are some other key elements of market intelligence that are critical to the property management process.

  1. Latest updates on property types and market rentals for comparable properties.
  2. Access to a local business database of tenant enquiry across property types.
  3. Knowledge about lease incentives in today’s market and how they impact a new lease deal
  4. The ways that a vacant tenancy can be marketed for best enquiry and lease occupancy
  5. The different situations of gross and net rental that can bring benefits to the landlord and their investment situation
  6. How to qualify tenants in the current market. Some tenants will not share their full business details and or lease requirements.
  7. Knowledge about levels of outgoings in the local area and how they are structured into new leases today

So, there is a message here.  A good property manager or real estate agent with a large team will understand these things and help the property owners appreciate what is possible with the investment property; that will then allow strategies to evolve.

An experienced property manager or leasing expert will also make clear recommendations about how to minimise the risk of vacancy and the time on market with existing vacancies.  Its all about strategy and experience.

high rise office buildings
Set your strategic plan in investment property with clear facts.

Strategic Property Plans

When occupancy is sorted for the property owner by a chosen property manager, the other issues of property performance can be escalated into a strategic property plan.  Those issues will be prioritized including:

  • Lease documentation review
  • Tenant meetings and interviews
  • Contractor interviews
  • Property handover checklists
  • Critical date assessments over the coming leases and investment cycles
  • Income and expenditure reviews for budget performance assessment
  • Maintenance planning to allow property compliance and safety planning to codes
  • Vacancy reduction plans
  • Tenant retention plans
  • Refurbishment and capital works programs

So, there are plenty of reasons for a property owner to seek outside assistance in managing their property; it’s worth the money and the fees paid.  The only question now left to investigate the is if the property manager has the experience and the business disciplines needed to control the asset efficiently for the future.

 

How to Encourage Tenants to Be a Good Part of Commercial Property Performance

shopping center mall

Landlords typically should spend more time strengthening relationships and services for their tenants in commercial and retail property.

A stable tenant and their business can add value to the investment property in many ways over time.  Conversely, lengthy and frequent vacancies will pull back the outcomes for the investment in rents, occupancy, and property value.

 

Some Tenants are Better Than Others

There are differences in tenants of course; some are more valuable than others as part of an investment property and its performance.  A large corporate tenant is generally a good part of the property income for quite some time; that must be protected and nurtured.

Stability in cash flow and occupancy is a core element of property performance.  I go back to the point that today, more landlords of commercial and retail property should spend time encouraging the relationships and support systems for their tenants.  It is a valuable partnership.

Where can that help be created?  Try some of these:

  • Early lease negotiation to provide the tenant with lease stability
  • The ability to change occupancy when expansion or contraction is required
  • Fair and reasonable market rent reviews with due regard to market conditions
  • Regular meetings with the tenant to ensure concerns are addressed
  • The selection of a good property manager that has experience and skill

 

man and woman talking

Calibrate Tenant Value to You

When it comes to leasing and managing your commercial investment property, it pays to keep in close contact with your tenants.  Tenants are like ‘gold’ and should be encouraged to remain in occupancy providing they are ‘stable’ and ‘relevant’ to the overall tenant mix; there is a balance there to watch and cultivate.  An investment property with a stable tenant profile will always attract more buyer enquiry and be easier to sell when the time comes around.

Realistically, commercial tenants and retail tenants all suffer issues relating to business activities and occupancy over time and through the year; the same can be said for the property owners and investors.  There is a partnership between the landlord and the tenants that should be encouraged.  That is where flexibility and communication are important controls to implement as part of the property management and leasing plan.

 

Drop Any Aggressive Negotiations

Landlords that are too aggressive on rents and lease negotiations are generally those landlords that lose the respect of their tenants over time, and that will be the first sign of a rising vacancy rate in the property.  When leases come to an end, those tenants will be the first to leave or put pressure on the property owners for any negotiations.

 

Prevent Tenant Problems From Starting

So, what can you do here to prevent those problems from starting?  Some of these ideas may help:

  1. Meet with your tenants monthly or quarterly to ensure that any issues and pressures are identified early
  2. Watch arrears issues and talk to tenants early to identify cash flow issues
  3. Administer the critical lease dates in a property in a timely way to ensure that nothing is left too late
  4. Keep on top of building maintenance problems, so the tenants have no hindrance to occupancy
  5. Address any lease expiry and rent review issues early so the tenants can plan for changes and pressures
  6. Ensure that the property is functional and attractive at all times to tenants and customers as they visit the property. That will include all services, amenities, and common areas.
  7. Maintain the exterior of the property, so it creates a ‘high-quality’ image for all tenants as they transact business and encourage customers.
  8. Provide practical and ample car parking for tenants and customers.
  9. Maintain the plant and equipment in a property, so that tenant ‘comfort’ is provided and the operation of the equipment is timely and cost-effective
  10. Keep property outgoings under control and inside budget
  11. Look at how tenants can market their businesses on directory boards or pylon signs at the property
  12. Provide good on-site security, access, and communication channels for all tenants.
  13. Ensure that the property manager for the property is communicating with tenants regularly and professionally.

These simple rules help greatly in controlling tenant interest and encourage them to remain in occupancy.  Good tenants are at least half of the equation when it comes to commercial and retail property performance.

 

Agents With Proven Property Successes – Ask About It

city hi rise buildings

As a commercial or retail property owner, if are considering listing the property for sale or lease, ask your agent about their successes in the local area with property that is specifically like yours.

Selling or leasing a property is not an experiment in marketing; it is a significant business and investment decision that is supported by strategies and target marketing.

The real estate agent you choose to list and market your property will be critical to the outcomes achieved in several ways.

 

two business people standing together

 

Demand the Facts from Your Real Estate Agent

An experienced real estate agent will know about the following and should provide clear strategies for you:

  • Existing properties on the market at the moment that will compete with your property
  • The asking rents and prices in the market at the moment on comparable property
  • The supply and demand for space in your area that can impact on the price or rent outcome now and in the future
  • The target market that would be most interested in your property for sale or lease.
  • Marketing methods that work in this property market without wasting time or money
  • They should have an extensive database of existing property enquiry from qualified buyers and tenants as the case may be
  • The existing time on market for properties given the prevailing market conditions
  • The best choice of method of sale or lease that should be applied to your property to get momentum.

Any commercial investment property can sell today or in the future.  The results that you get are driven from your choices today and just how you list your property.  A good real estate agent that knows your area will help with that.