Things to Look at When Purchasing a Retail Shopping Centre

When purchasing retail shopping centres or malls, the type of centre needs to be noted as well as its location, size in the lettable area, state and condition of the property, and types of shops, number of car parks and other features such as services and amenities that would attract customers.   The property has to be relevant and friendly to the community.   The property has to attract visitors and frequent shoppers.  Look at any retail property from that perspective before you look at the rental income and the tenant mix.

Demographic factors should also be explored in the case of every retail property.  For example, how is the population distributed about the centre?  What are the growth rates and the spending power of the targeted community?  Are there any roads and highways that can direct or restrict traffic about the property?

retail shopping mall escalator

Records of turnover are invaluable in assessing past property performances, and the number of customers through the centre.  A good retail property will have leases that support the supply of turnover figures to the landlord on a confidential basis. While the tenants may have a sensitivity to doing that; it is the only ways a landlord or property manager can assess property customer visits, and just who are the successful tenants.

Shoppers to a shopping centre will shop on particular days, and that will create peaks in trade.  Have a look at other shopping centres nearby to see how they compare to the property you may have under consideration.  Be mindful of the other impact of seasonal sales and holidays on retail trade.

Know the Property Comprehensively

The turnover in a retail property can be centred on a particular type of tenant, for example, fast food and fashion.  Weaknesses in turnover can then be seen when turnover figures are categorised.  If the tenant is not a high performer in the property, then it is best to consider a change rather than let a shop location loose customer interest.  It is for this reason that a lot of landlords in larger properties will not give options when leasing premises to new tenants.  In that way, they can preserve their choices in the tenant mix.

In this market, the levels of income in the property together with the outgoings have to be well managed.  Rate of growth in outgoings and the rate of growth in rental income should also be noted.  Read the leases to get to the bottom of what has happened over recent years.  See what the leases say regards rent reviews coming up and how they can be handled.  So there is a full review process here to implement when looking at a retail shopping centre as an investment.  Are you ready for the challenge of the investment?

Things to Look at When Leasing Commercial Property

If you are a landlord in Brisbane and wanting to lease a property to a new tenant today, it pays to fully understand the leasing and vacancy competition that you are up against.  Let’s face it, tenants are looking around at everything that is available, and they are more selective in making a final decision. They generally know what the rents are doing, they know what their cost limitations are, and they can generally ‘shop around’ for the ideal vacant premises.

What’s Your Leasing Focus?

So, what are your priorities in leasing premises? What do you prefer out of the following?

  • A tenant leasing space?
  • A high rental?

It is sometimes difficult to achieve both points of focus in the one leasing transaction. A good lease with a new tenant should be a priority. A ‘fair’ rent is the best way to attract a lease and tenant arrangement. The escalation of rent over time can then be improved by a rent review strategy.

city hi rise building
Understand the leasing market in commercial real estate in your location.

Today’s property and leasing market in Brisbane provides a broad selection of vacant space to the active tenants in most locations.  The vacancy rates in the local property precinct can make your selection of rental a key part of the leasing process.  Add to this some other leasing decisions such as:

  • Lease term
  • Option availability
  • Base rental
  • Rent reviews
  • Rental type (gross or net rent)
  • Outgoings recovery

Expert leasing advice is critical here.  Leasing a vacant tenancy is not just a simple decision.  We guide our clients through some key decisions like those above so that the best lease can be created given all other property factors and pressures in the local area.  Timeliness is important in getting a property leased today.

Getting the Right Price for Your Investment Property

When you sell a commercial investment property, the price you achieve is driven by the market.  It is the buyers in the market that generate the interest and ultimately make the offer.  Contrary to popular belief it is not the sellers or the real estate agents that set the final price. 

What the sellers want for their property and what the agents think they can get are in reality an educated guess or wish based on market trends.  The end price for a property is driven by the buyers in all cases.  If a sale goes ahead it is because the buyers are willing to pay the money; sure the seller has to accept that price, but without a buyer making the offer, the price for a property is just a number.

Real estate agents offer real benefit to the sale process because they are working with buyers and tenants all the time.  The database that an agent has is a huge source of opportunity when it comes to selling your property. 

The bigger and better the database, the more exposure to qualified buyers your property will have.  This massive exposure that some agents have to buyers is of great advantage to you when you want to sell the property.

At the time of putting your property on the market, find the agent with the best and most up to date database; it will be a direct reflection of their market penetration and territory domination.  They are the agents that should sell your property and they are the ones that will have an idea of what buyers are willing to pay in the current prevailing economy.  Make the right choice and get the best agent to help you sell your property.

What to Look For in Commercial and Retail Leases

shopping centre mall foyer

Property owners that lease commercial property to tenants should keep a close eye on the terms and conditions of their leases.  It is all too common that a critical date or situation is overlooked in a lease and the landlord or property manager has to chase down and remedy the matter. 

The key secret to keeping a commercial property on track is in understanding the leases and thoroughly actioning any date critical terms and conditions.

city building high rise
Look at Your Investment Property Comprehensively

There are many things to look for but here are some of the main ones to monitor:

  1. Rent review dates
  2. Option to renew dates
  3. Lease expiry dates
  4. Renovation date requirements
  5. Insurance certificate of currency evidence
  6. Charges for outgoings
  7. Reconciliation of outgoings
  8. Payments of sundry charges under the lease
  9. Rent payment provisions
  10. Turnover reporting to the landlord
  11. First right of refusal provisions

The list can go on, but importantly the critical dates in a lease are handled and controlled.  In this way the property can be optimised for the landlord and the tenant.

When it comes to marketing and selling your property, the time you spend on tracking and checking critical dates is invaluable in the long term.

Contact Systems for Commercial Real Estate Tenants

tops of city buildings

When you own a commercial or retail property, it pays to keep in close contact with your tenants.  They are a key part of the property performance and should be nurtured to stabilise income from the property.

As part of keeping in contact with the tenants in your property, you can create a tenant contact plan that formalises the meeting and any feedback that may happen as a direct result.  Many larger landlords in high performing properties will create and hold tenant contact meetings with all tenants at least every 90 days.  In retail property this cycle is shorter given that a retail property is a very active type of property investment.

So just what can and should you talk to your tenants about?  Try this list:

  • Need to expand premises
  • Need to contract premises
  • Maintenance needs in the property
  • Interaction with other tenants in the same building
  • Exercise of lease option
  • Use of the building
  • End of lease issues
  • Renovation or refurbishment plans
  • Insurance
  • Terms and conditions of their lease and compliance to that

It is interesting to note that good tenants are constantly being networked by other property owners and real estate agents in your local area.  All the more reason to keep in contact with your own tenants to make sure they are happy in occupancy.

Why Commercial Property Leases are So Important in Investment Performance

When you own commercial property or retail property, the leases that reflect the tenancy mix are the foundation of the cash flow.  Then when it comes to selling that property it is the leases that will drive buyer interest and ultimately assist in getting a better price for the property. 

A property with a good lease profile will create property investor interest; it’s that simple.  It then stands to reason that the lease negotiations that occur in your property should be carefully planned and optimised with the ‘end result’ in mind.  You never know when you want to sell or refinance your property.  The leases will be the attraction to support your processes and needs.

It can also be said that not all tenants are equal when it comes to investment performance. Ultimately you would want a mix of tenants that are not too ‘volatile’ in the daily events and operations of the property.

So, What Are Your Investment Systems?

So what can you do here as a property investor?  Take a look at all your leases and the broader tenant mix.  If you own a shopping centre or a large office tower with many tenants, think about creating a list of tenants and splitting them up into priorities and retention groups. It stands to reason that you may want to keep some of your tenants more than others. What can you do to negotiate leases with your ‘desireable tenants?’ Try a tenant retention plan for starters. That strategy should feature in your investment or property business plan. Understand the deals that you are prepared to do with your better tenants. That will include incentives, rents, and lease terms.

Set some rules and standards about these things below and then see a good solicitor to help you with the lease creation:

  • Rentals
  • Rent review timings and standards
  • Option terms
  • Make good provisions
  • Lease terms and conditions
  • Ideal tenant type and operations

When you make every lease count, the property starts to take on a whole new level of performance.

What Tenants Do You Want?

As a property owner and investor, you will sometimes be actively seeking a new tenant to fill a vacancy in your property.  The best way to market the vacancy is through the dedicated efforts of an experienced real estate agent that is working for you on an exclusive agency basis for a period of 3 or 4 months; that is generally how long it takes to tap into the target market for the property and find the right tenant. 

The exclusive agency method gets the agents full focused efforts during the time that the listing is promoted.  If the property has not leased by the end of that time then something is frustrating the leasing process (such as high rents, poor quality premises, abundance of lettable space available or poor location)

Let’s say your marketing of the property has just commenced.  The adverts are on the internet and you have a signboard on the property.  Enquiry is good and inspections are occurring.   So along comes a new tenant; and then another and yet another.  All of a sudden you have 3 tenants all looking at the premises and soon the offers come in.  So the question is just who do you choose as your tenant to take the premises and why?

The issues involved in leasing decisions are complex and involve many long term issues.  The reality is that the best tenant is not always the one that is paying the highest rent; it is the one that is producing the best cash flow over the lease term (plus other things).  To analyse that fact you can do a net present value (NPV) analysis of the passing income from the lease taking into account the key factors from the lease over its duration such as:

  • Start rent
  • Lease term
  • Rent review methods and timing
  • Value of incentive provided
  • Cost of money (%) over the term

That will give you a better reason to select one tenant over another.  Interestingly the tenant with the highest NPV will not always be the one with the highest start rent.  It is the long term package and rent review structure that matters and you will see that in the NPV number calculated.