Shopping Center Managers – Develop Your Tenant Mix and Strategy

When looking at a retail property it is important to look at the tenancy mix to see if any weaknesses exist in the current tenant placement. A poorly located tenant can drag down the performance of other tenants around them. That means a threat to rental and a potential vacancy exposure if the location becomes empty. Vacant tenancies are to be avoided at all cost if you want the property to perform well.

So here is a way of assessing the fundamentals of the property tenant placement.

So here is a way of assessing the fundamentals of the property tenant placement. It pays to use a checklist in the process so that all bases and issues are covered.

  1. Firstly you need to understand just who the anchor tenants within property are. They are the tenants around which the property functions. They will be the main reason customers visit the property. The anchor tenants will contribute largely to the property image, so choose your anchor tenants wisely. Anchor tenants give you a long lease (typically over 10 or 20 years) but they pay a lesser rent average based on unit area measurement. A retail shopping centre will only have a small number of anchor tenants (1 to 3) and they will be strategically placed across the property to create flow of customers through the common area. The options for lease renewal with anchor tenants are an important factor for both the tenant and the landlord. If there is any potential for the anchor tenant to leave the property at lease end, then it could destroy the property identity and cash flow. Landlords have to cover the issue early with lease renewal negotiations or finding a new anchor tenant well before the current anchor tenant leaves.
  2. Who are your major tenants? They are not always just your anchor tenants. Major tenants contribute to shopper interest and property visits. They supplement the anchor tenants but will not be as large as anchor tenants. They may be franchise tenants (although not necessarily). They are positioned between the anchor tenants on the traffic flows of customers. When you choose good major tenants you can create small clusters of tenants with complementary products or services. They become islands of interest for shoppers. Some major tenants will have sensitivity to being in proximity to certain other major tenants. The major tenants can trade off or through the trade of others, and experience in other locations influences their decisions and preferences in that regard.
  3. After you have placed anchor tenants, and major tenants, you get to the decisions on specialty smaller tenants. They will fill in the smaller shops and extend the customer interest in and around the traffic flows. Specialty tenants are of the greatest value when they are placed in areas near major tenants that they complement. Specialty tenants can be destination specific as shoppers will visit them if the offering is very good and unique. Select specialty tenants that are well proven from other locations.
  4. Convenience shopping is the next in the chain of tenant placement. Convenience shopping is centered on the daily needs of the community and will cover commodities such as food, bread, newsagent, butcher, fruit and veg. They will usually be placed in and around the supermarket anchor tenant.
  5. So do you have a food court? Any decent shopping centre should have a food court to extend the stay and interest of the customers to the property. The food tenants will have to be controlled in their food offerings so you get the quality and variation of food that customers want. Not all types of food work in a food court, and the choices will largely be dictated by the surrounding customer base.
  6. Do you have an entertainment type of tenant offering? In larger properties this will be cinemas or game type tenancies. They work the best when they are near the food tenants.
  7. Access in and out of the property from the car park has to be convenient and safe. If customers do not get a feeling of convenience from the property then they will stop coming to shop. Take a walk around your property and do so from the car park as a shopper. See what a shopper would see; feel what a shopper would feel. A good retail property has to be convenient and fresh. The customers visiting the property should feel good from the event. Any frustration they could experience has to be lessened or removed.
  8. Franchise tenants with a notable national identity are useful in a shopping centre as they will bring customers specifically wanting the offering or the brand. Space out the franchise tenants with local specialty tenants to achieve variation and interest for the shopper.
  9. Always keep the image of the shopping centre and all the tenants at the highest possible levels. To do this you may need a property lease that supports approvals and controls relating to tenancy presentation and any changes. The landlord and the property manager can then enforce critical presentation decisions.

All of the above points reflect decisions and tenants that the community needs and wants. This says that you must understand the type of community around the property and what they want in local shopping.

A retail property is a vibrant living property investment that cannot be left to its own daily function. The best retail properties are well planned and organised with constant attention from the landlord, property manager, and leasing manager. The bond between tenants, landlord, customers, and property manager is critical to the success of the property.