Build Your Shopping Centre Tenant Mix the Right Way

If you are the leasing or property manager in a retail shopping centre, one of the key facts of property performance will be the tenant mix. If the tenant mix is not correct then it will frustrate the future of the property through:

  • Poor tenant sales
  • High vacancy factors
  • Volatile lease terms
  • Unpredictable outgoings recovery
  • Unstable mark rent
  • Poor customer numbers or visitations to the property

So the best way forward is to get a tenant mix plan or strategy in place as soon as possible. To do this you can use the following base plan for implementation of the tenant mix plan with the landlord:

  1. Seek details from the landlord as to how long they want to hold the property as an investment. There is a different approach to short and long term holdings when it comes to lease negotiation and tenant mix.
  2. Survey the local shoppers to understand what they want in their regular shopping patterns and needs. What opinion do they have of the property and how can you match or improve on it?
  3. Are there any intentions to redevelop or demolish the property and for what reason? This will have impact on your lease terms and conditions.
  4. How do shoppers move to the property and through the property? The flow of people will create high points and locations for your good retailers to be located.
  5. Who are the anchor tenants now in the property? Are the anchor tenants nearing lease expiry (inside 2 years), and if so how will you address this matter? Do you want the anchor tenant or tenants to renew and on what basis? You should fix any matters of the anchor tenant lease before you look at the specialty smaller tenants.
  6. Are there any relocation plans to move tenants around the property? This will impact your tenant mix strategy and the duration of leases that you negotiate.
  7. Split your tenants into two or three groups. Tenant Group 1 would be the tenants that you want for the future to remain in the property, and on that basis you would negotiate any lease on reasonable terms. Tenant Group 2 are those that you may like to stay in the property but it is subject to some changes in occupancy such as relocations, renovations, change of permitted use, or change of lease terms and conditions. Tenant Group 3 will contain those that should not remain in the property at lease expiry; they are of no benefit to the customers or the levels of sales in the greater property. All these tenant groups should be reviewed every 3 months because there will be changes.
  8. Taking each of the Tenant Groups 1,2, and 3 above, split them into sub-groups of retailers categories such as Fashion, Food, Electrical, Jewellery, Sports Goods, Entertainment, etc. From these sub groups you can work out what groups work well with each other and can therefore be used in clusters around the shopping centre. The clustering of tenants near each other is ultimately what tenant mix strategy is all about.
  9. Identify what tenants you need and do not exist in the property now. They will become Tenant Group 4. Start to look around other competing properties for retailers that fill this requirement. They should be contacted and networked for property relocation to your property when they get to the end of lease term.
  10. Given the plans of the landlord and the existing tenant profiles and mix, create the standards that should apply in any new lease to be negotiated. Add to this some independent valuation and projection of market rentals that apply in your location to a property of your type.

These factors will help you get the tenant analysis and plan under way.