A shopping centre is a special type of property investment that must be well managed and leased. It is closely integrated to the community and serving the customer. If it does not achieve that, then the property fails and the landlord loses money. This is where lease management and tenant mix are critical to the leasing success in a retail property.
Poorly constructed leases and inexperienced tenants in a retail property are like a cancer on property performance. It can drag the property back for years. Careful choices are required. So let’s look at that.
In a shopping centre the property manager has to be forward looking and planning the placement and performance of the tenants. Vacancies are to be minimised through strong lease administration processes. It is not unusual to be planning your leases and vacancies up to 2 years ahead. Given that retail property renovation and upgrades occur frequently, lease administration and vacancy controls are critical.
In shopping centres it is not unusual for landlords to avoid giving options to tenants to renew for further terms of occupancy. The reality is that a successful shopping centre does not normally need to give options to minimise vacancy. A successful shopping centre would generally have a list of tenants waiting to enter the property.
Options for a further term of occupancy only benefit the tenant, and in most cases are given by the landlord when the premises are difficult to lease. If you have to give an option to a tenant negotiating a lease in a successful shopping centre, then make the option shorter and keep the window of time to exercise that option relatively short and well away from the end of the lease. In that way the landlord can decide what to do if they have to find a new tenant.
Not all tenants will suit the property and the vacant area. Careful choices must be made to keep the tenant mix performing for the customer to the property and the landlord. So the rules to lease vacant space in a shopping centre include:
- Optimised rental income and growth from the tenant
- A lease term that does not expose the landlord to excessive vacancy across the property
- A balance to other tenants in the tenant mix
- Recovery of outgoings relative to the lettable area
- A quality tenant that supports the image of the property
- A tenant with a proven track record of success and service
Many prospective tenants will want to know about the tenant mix and the anchor tenants lease expiry dates in the property. They will also like to know about the levels of trade and customers visiting the property on different days of the week.
You should expect that prospective tenants that are considering a move to a retail property or shopping centre will take time to talk to the other tenants to see just what they think about the property function, the property management, and the landlord. That is all the more reason for you to encourage good property performance, and happy tenants. Do this and your vacancies will be minimal.