Wednesday, June 5, 2013

How to Perfect the Retail Tenant Mix in a Shopping Center

Choose your tenant mix well.

In a retail property, the tenant mix will be a key factor in the success of the property and the strength of the market rental.  A correctly designed tenancy mix will encourage future sales and minimize vacancies.  That will have a direct impact and benefit to the property owner and landlord, as well as the tenants in location.

The landlords of retail shopping center’s and properties would be well advised to devote time and energy to the tenant selection and placement process.  This can be successfully undertaken as part of the yearly business plan for the property.  

As a special note, the business plan for the property should be created once per year, and adjusted quarterly based on the trends of the market, economic conditions, financial performance, and vacancy factors.

Here are some ideas to help you with the property planning process and tenant placement:

1.       Review the competing properties in the local area.  Some may offer factors of attraction to your tenants and potentially draw some of those tenants away from you.  For this very reason, your lease strategies and rental structures need to be well considered for tenant stability, rental advantage, and competition.  Your property needs to be the best value for ongoing occupancy and potential trade.
2.       Some of those competing properties will have tenant mix structures that are quite successful.  Look at the factors of clustering within each competing retail shopping center.  Determine the clusters that work successfully and why that would be so.  There will always be positive relationships between some tenants to the benefit of ongoing trade.  Replicate the good factors that can have benefits to your property.
3.       Review your existing property with due regard to rent reviews, options, and lease expires.  Some tenants will choose to leave the property at the end of the lease term.  You will need to prioritize your tenants into groups so that you can negotiate successful lease transactions with the priority tenants.  Tenant retention within a property business plan is a useful concept.  The retention plan can allow you to work well in advance when it comes to priority tenants.
4.       As a general rule, it is not productive to offer option terms to tenants at the time of initial lease negotiation.  The landlords of larger shopping centers typically avoid giving options.  They would rather negotiate a new lease with the successful tenant at the end of the initial lease term if the tenant has proven themselves in occupancy within the property.  A single lease term always gives the landlord maximum flexibility when it comes to tenant relocation and any required tenant mix changes.
5.       Understand the linkage and benefit between specialty tenants and anchor tenants within your property.  The trade and the activities of the anchor tenant should encourage more customers to the property and potentially more trade for the specialty tenants.  Encourage your anchor tenant to participate strongly in the future of the property and maximize customer interest.
6.       Develop a marketing plan for the overall property, and to help boost the trade of the tenants within.  It is likely that the marketing plan will require contributions from the tenants, and that will require their agreement.  That agreement can be achieved through the standard lease documentation at the time of lease negotiation.


It is not hard to perfect a retail tenancy mix within a shopping center.  It is simply a matter of understanding the profiles of the current tenants, the opportunities that the customers provide to the property, and the prevailing market conditions.  Match your property tenants to the demographics of the local area and the customers’ requirements.

You can get some more tips in our commercial real estate training newsletter right here.