How to Create an Effective Retail Tenancy Mix in Melbourne

It is no secret that the retail property market and investment is very active in Melbourne most of the time and is likely to remain so.  Quality investments supported by a strong and stable tenancy mix will always attract enquiry and interest from the market.  Investors are looking for retail properties to expand their portfolios.  Are you ready for some retail in your investment portfolio?

It directly follows that you should shape and optimize your retail property or investments over time considering the tenants, the mix, and the cashflow.  Shopping Centres or strip Retail Shops can all be optimised.  A retail strategy is part of that.

Investor Interest in Retail is Always There

Prime retail property investments attract a good degree of interest in any sale, lease, or marketing activity.   Enquiry for those properties is always there and active for good investment stock in Melbourne.  

If you invest in or own retail property in Melbourne or greater Victoria, you should create and shape your tenancy mix for the long term.  Look at all lease negotiations and tenant placements more ‘globally’ to the greater benefit of your property and your investment targets. 

Where can you start with this?  Target the factors of stability, income generation, and risk reduction in your investment portfolios.  Look to the future as you negotiate your leases and attract new tenants.  It is a fine balance to achieve, but it works well.

Ways to Improve Retail Properties

Here are some ways you can do all that effectively into the future with your retail and commercial property investments:

  1. Monitor critical dates such as rent reviews, options, and expiry dates – These dates will vary by lease and by property.  Load all your upcoming critical dates into your diary of lease decisions and act early on them.  If your property has multiple tenants in occupancy, then capture all the dates for future action and monitoring. Work well in advance when it comes to your lease dates and tenancy issues.
  2. Select tenants for stability and retail offering – Not all tenants are the same or of equal value in any retail investment property (there are differences).  Look into the balance of retail offerings in your shopping centre and understand the relevance to the customer base and the local demographic. If you have any franchise brand tenants in the mix, also look at how the franchisor is supporting the franchisee with business management and marketing.  Today we are seeing some ‘volatility’ in some of the franchise brands in retail.
  3. Lower your vacancy risk – Always face the facts in retail. You will have vacancies, and some tenants will default in occupancy.  Vacancies will happen. So, the message is that you can stay ahead of your vacancy factors and tenancy pressures by adopting a regular tenant communication plan and ongoing tenant retention strategy or plan.  There is plenty of changes going on in retail today as customers and sale patterns are changed by the internet, online sales, and customer shopping patterns.  Retail shopping centres won’t disappear, but they are under change. 
  4. Choose the right anchor tenants for the property – The lease for an anchor tenant must reflect property stability and target long term occupancy. That does not normally include high rents per unit of occupancy.  The anchor tenant is pulling people into your tenant mix; it is building the retail profile of the property.  When you have a good anchor tenant you can spread or stagger lease expiries across your specialty tenants.  That strategy reduces your risk of too many leases expiring at the one time.  You would only want that expiry situation if you were to do a full property renovation or tenant mix upgrade.  When you negotiate your lease term for a tenant, think about the other lease expiry dates already existing in the property.  Note that the traditional large department stores as anchor tenants today are now less desirable in a tenancy mix.  They can be an occupancy weakness due to the impact of online sales, and the trend of shoppers to look for more entertainment and food as part of retail shopping.
  5. Create accurate and comprehensive lease documents – The documentation that is used in leasing premises is quite important.  Quality lease documents will strengthen the landlord’s position and investment outcomes.  As part of that, you can create a standard lease to suit your investment targets.  You can also build some ‘lease security’ into your lease negotiation with security bonds and or bank guarantees being noted and agreed to in the lease negotiation.
  6. Don’t give the tenant any access to the premises without all documents, insurances, and securities in place – It sounds so logical, but many a property owner or investor has made the fundamental mistake of giving keys to the tenant before all lease matters are agreed and resolved.
  7. Don’t forget risk and liability – All lease negotiations should be designed to reduce landlord risk and liability over the long term.  Some tenants will bring extra ‘risk’ to a property by and through the nature of their business.  The lease has to identify that fact and control that risk.
  8. Communicate with tenants regularly and document all meetings, discussions, and agreements – Many things happen over the term of a lease. Things are said and agreed to with tenants.  Ensure that all tenant matters are well documented and controlled.  Remove any potential for disagreement by noting and documenting all meetings, discussions, and agreements. Involve your property solicitor on any lease matters that may need ‘reframing’ or extra supporting documentation.

So, there are some good things here that you can work with to improve your retail property investments in Melbourne.  Plan your property occupancy, use, and tenant leasing process.

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