Why Traditional Department Stores are Dying in Regional Shopping Centres

retail shopping mall

It is a fact that many shopping centres in Australia, Europe and the US are suffering a ‘slow death’ with their traditional department stores as anchor tenants.  The factors of attraction with the typical and older style department stores are no longer as evident as in the early 2000s, and in most cases are now in decline. 

The retail model for department stores originated in the 1980s when we didn’t have the internet and a ‘global economy’.  We also didn’t have the huge variety of goods and services that we have today.  We didn’t have mass and multi-channel communication tools at our fingertips to buy and sell products and services.   Customers didn’t have many choices or ‘channels’ to source their retail requirements and products and services.

woman shopping for vegetables

Its a Global Retail World

The marketing of retail goods today has changed dramatically, as has the sale and supply of retail goods.  Customers today can buy just about anything they want from a huge number of suppliers online from around the world.  Delivery is fast and efficient.  Quality is also good.   Ladies fashion is a good example of a shifting merchandise category.  

The main reason customers go to a shopping centre today is for the ‘immediacy of purchase’, convenience, and for the entertainment.

Today, customers can get most of their products and services from all around the world; they can shop from the convenience of their lounge room, and in doing so they can purchase at the best prices.  Sure, they may have to wait a few days to get their goods, but they know they have purchased well, got what they wanted at a good price, and they trust the proven supply chain to deliver goods on time and accurately.

woman with shopping bag
Know your shoppers and their requirements

Convenience in Retail is Everywhere

Customers can shop from their mobile phone, or their laptop computer.  Shopping is so easy online; it is far easier than visiting a department store with depleted staffing numbers and poor service.  Traditional department stores still play with the concept that ‘big is beautiful’ in retailing.  That business model is outdated.  ‘Big’ doesn’t work in retail anymore. 

‘Experience and entertainment’ are the new factors of attraction for retail customers to a retail shopping centre of any size.  The customers want to enjoy shopping and be entertained as part of the process.  Smaller neighbourhood shopping centres, on the other hand, exist as a ‘convenience’ factor for the local community.  They will continue to offer ‘convenience’ shopping that the regional centres can’t fulfil.

Remember when ‘Uber’ took on the large taxi companies and won?  The same timeline is now evident in shopping centres.  The specialty tenants are now more relevant in the tenant mix than the larger department stores.

woman shopping

What Do Shoppers Want?

Customers are today visiting shopping centres for just a few simple reasons, and they are mostly:

  • Convenience
  • Service
  • Entertainment
  • Value, and
  • Variety

 ‘Big’ is no longer a drawcard in retail property performance and customer attraction.  Customers don’t want or need ‘big department stores’ anymore; they are just not interested in shopping in some ‘boring’ department store with a 1980’s business model and low staff numbers to serve.  Retailing has become more ‘refined’ and specialised.

If you own a larger retail shopping centre with a department store anchor tenant, be aware of these problems and ensure that you encourage the department store to adjust to the retail shopping trends of today.

Tenant Mix Review Strategies for Retail Property Investors

shopping centre mall

When purchasing a commercial property it pays to set some realistic and achievable lease plans and targets.  This is fundamental to the future of the property and the cash flow.  It can also protect tenant mix and tenant stability.

man standing outside of office building

When looking at a commercial property for the first time, review the leases and occupancy documentation for issues involving:

  1. Type of rent
  2. Payment of rent
  3. Growth of rent
  4. Rent review processes
  5. Rent review timings
  6. Make good requirements for the tenancy
  7. Obligations on the landlord and the tenant during the lease
  8. Obligations on the landlord and the tenant at the end of the lease
  9. Seek out details of lease incentives that may be still current
  10. Review the outgoings paid under the lease by the tenant and by the landlord
  11. Look for recoveries of outgoings paid under the lease and how the landlord can get back money for that
  12. Look for refurbishment or renovation provisions imposed in the lease and how they can impact the tenant or the landlord

Remember the rules as you consider property purchase.  When in doubt seek out a good property solicitor before any decisions are made.  The critical thing to know when purchasing a commercial property is that you are not just buying the improvements but also the structure of the leases and the cash flow.

Why Tenants are So Valuable in Commercial and Retail Property Performance

tenants in shopping mall

Landlords in Brisbane should spend more time strengthening relationships and services for their tenants in commercial and retail property.  Successful tenants help a property investment thrive; they bring stability to the asset.

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.  An investment property that is ‘volatile’ in income and occupancy is generally harder to lease and to sell.

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 more landlords of commercial and retail property should spend time encouraging the relationships and support systems for their tenants.

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
woman operating machinery
Work with your tenants and their business.

Create a Tenant Retention and Contact Plan

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.   

business men walking in street
Connect with your tenants in a positive way.

Don’t Be Agressive as a Landlord with Tenant Occupancy

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.

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 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 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
  10. Look at how tenants can market their businesses on directory boards or pylon signs.
  11. Provide good on-site security, access, and communication channels for all tenants.

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

Anchor Tenant Choices in Shopping Centre Investments Today

retail shopping mall

Have you ever thought about what makes a shopping centre so successful as an investment in Brisbane when other similar properties nearby are struggling?  There are usually 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 Brisbane know all too well the importance of the equation and the balance of it.  Neglect one part of it and weaknesses can develop.  The retail property can degrade very quickly.

Expect retail sales to be important to your investments

Fundamentals of Retail Property Performance

So, let’s look at the anchor tenant part of the equation.  When it comes to the performance of the 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 to the future of not just the property but also the community of customers.

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 any anchor tenant in occupancy to ensure support and involvement in multiple ways.

Shopping carts
Attract more customers to your retail property.

Things to Review in Shopping Centre Purchase

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 three 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.

Things to Know About Landlord and Tenant Relations in Shopping Centres Today

retail shopping mall

The shopping centre and retail property markets in Brisbane and Queensland are changing today, and that will reflect on how tenants create sales, attract customers, and grow their business over time.   The internet and the ‘online’ side of things are now changing how property occupation works, retail sales, customer interest, and just what businesses need to lease premises successfully for the long term. 

Many retail businesses today don’t need to lease as much space as previously required.  Sales per unit of area are now an important equation to be monitored.  It all comes down to a ratio of occupancy costs to Gross Turnover.  Different businesses have different ratios and the averages for the retailer type are worth understanding. 

money on weight machine
Rental money is only part of the retail shop and tenant equation.

Ratios of Rent and Occupancy Cost

Food type retailers tend to be at the higher end of the spectrum at around 15% to 20% of occupancy cost to turnover.  Those landlords that are seeking higher rent, will push the ratio up for the tenant, and that is not always sustainable for the longer term.

Conversely at the other end of the ratio assessment, fashion type tenancies are now seeing their profit margins fall and turnovers reduce (all due to the internet and sales occurring online).

Given these problems, landlords would be well advised to manage their rents to realistic and not aggressive levels.  It is better to have tenants paying a moderate rent for the longer term, than tenants closing their businesses due to lack of profit.  The value of landlord and tenant relations should be understood and respected.

woman holding shirt
Manage the retail shops and tenant mix in a positive way.

How a Landlord Can Work With Tenants

The extension of this is that a landlord should work with their tenants in a positive and consistent way.  How can a landlord encourage positive tenant relations?  Try some of these for starters:

  1. Regular meetings – this sounds logical, but it is surprising just how ‘random’ many landlords are with tenant contact.  They let the contact go until something starts to pressure the tenant relationship or the occupancy.  When the ‘pressure’ is on, lease negotiations are always harder, and the alternatives to solving a lease problem will be less for both parties.
  2. Create comprehensive leases that work for both parties – the lease document supports occupancy and income stability.  When you look at it from that perspective, how a lease is created should be carefully considered.
  3. Clarify and control critical dates for all leases – this is a planning process of an advanced and positive nature.  Critical dates coming up with any leases should be watched and tracked at least 18 months out from the ultimate date.   That is how you can stabilize an investment property.
  4. Be flexible in tenant mix alternatives – if a tenant is under pressure, then look at the variables of expansion, contraction, or relocation.  There are ways to solve a tenant lease problem related to local business pressure.
  5. Understanding property use – for the investment property to thrive over time financially, the use of the property must be optimized.  There will be a balance between common areas, leased areas, car parking, and services.  The owners of competing properties of the location will always be seeking to attract tenants.  All the more reason to stay close to your tenant mix and property occupancy.
  6. Occupancy is not just about rent – collect a fair and reasonable rent for the property and the location.  Aggressive and high rents force people away from a property.  Look at the bigger picture of property occupancy costs including rent and outgoings.  How do they compare to other properties in the location?  Preserve your tenant mix by keeping occupancy costs in the ‘fair and reasonable’ zone.
  7. Negotiating leases early – if a lease matter is coming up (option or expiry), it is timely and sensible to negotiate any lease matter early.  Don’t wait for the lease date to arise before you start discussing things with the tenant. 

So, these are valuable ways to work with tenants and preserve lease occupation in commercial or retail property.  Improve your investment property and stabilize it by negotiating with and consulting your tenants in a positive way.  Their business success will be the foundation of your real estate investment and its performance.

How to Optimize Shopping Centre Performance in Brisbane

retail shopping mall

There is a change evolving through the retail shopping centre ownership and investment market in Brisbane.  Around Australia and in Queensland you can see retail indicators growing and shifting. 

The stronger retail properties stand out as the ‘performers’, and the weaker ones can lose their retail customer base all too easily.  The successful retail properties today are notably in categories of either:

  • Regional
  • Neighbourhood
  • Destination
  • Tourism integrated

The competitive nature of retail says that a shopping centre should be optimized in all ways possible, so the customers keep coming back.

woman with shopping bag
Know your shoppers and their requirements

Improving a Retail Property for Customers

How can you strengthen your retail property and its category or customer attraction?  Positioning is so important to attract customers to the retail offering, and in supporting the tenants with potential sales.  Don’t let your retail property become ‘mediocre’.  Failing tenants or poor sales will produce higher vacancy factors.

Neighbourhood shopping centres will of course always exist, but the shaping of the tenant mix is critical to capture the local shoppers before they engage with regional retail offerings. 

The retail customer base today is more ‘mobile’ and will easily travel to the retail property where they can get the products or services, but more importantly the entertainment.  Shoppers like to feel good and be ‘entertained’ as they conveniently shop locally or regionally.

If you own a shopping centre or are considering the purchase of one, consider the positioning of the property now and how it could be ‘strengthened’ in its category and for its location.  Get positively involved in the future attraction of your retail property.

Where can you start with that? Choose the category of retail that should apply with your property and its demographic, and then boost the tenant mix, the customer attraction, and then the market rent.  All factors are linked.  It is a retail equation for landlords.

Shopping carts
Attract more customers to your retail property.

The Base Plan for Property Improvement

As an extension of that idea, here is a ‘base plan’ for retail shopping centre optimization:

  1. Support tenant retention with quality tenants
  2. Reduce vacancies before they appear
  3. Balance the tenant mix for quality
  4. Market the Shopping Centre comprehensively
  5. Know the local property market and customer base
  6. Apply local area marketing online and offline to the customer base
  7. Engage with your tenants frequently
  8. Watch your outgoings costs and comparisons for the area and property size

As a final note, the entire sector is shifting with the pressures on retailers from the internet; customers like to purchase some goods and services ‘conveniently’ online.  This directly says that the landlords of shopping centres should consider all the strategies behind their tenant mix, shopping centre operations, lease management, marketing, and their income base. 

Choose the right tenants for your shopping centre that can form the basis of customer attraction over time.  Protect your asset and its investment performance over time.