Value Opportunity

By on Nov 30, 2016 in People


Martin Betts

Editor’s note: the following article originally appeared in the British real estate publication Property Week on Nov. 25. Martin Betts is Yardi’s Sales Director for UK and Ireland.

Are some shopping centre landlords guilty of thinking their asset is simply a property? They get the tenants in, the leases agreed and the rents start rolling in. But thinking in this way can limit the potential of the asset. For unlike an office block or an industrial unit, the shopping centre presents many different avenues for turning revenue.

The unique nature of the mall means there is huge potential for additional revenue generation- something landlords and shopping centre managers need to ensure are managed and promoted effectively. Spaces like the walls are potential advertising spots, mobile phone masts can be erected on top of the buildings, pop-up stands can be used to utilise what would otherwise be dead space within the mall and even car washing facilities in the car park – all of this generates rent for the landlord and maximises space.  Some of the best shopping centre operators have been doing this for years, but there are still way too many that aren’t or are not capturing the data that highlights where these opportunities exist.

The UK market is moving more and more to a turnover rental structure, so an even greater prevalence is put on the landlord to drive footfall and entice people to the centre.

But this is not easy in such a competitive retail and shopping centre sector, where you may have three shopping centres in close proximity to one another, all vying for the same customers. People will generally choose on the calibre of the shops and the experience they receive.

So how do successful landlords and managers attract people to the mall and gain the most value from the shopping centre? First and foremost they establish a target user. Is the mall going to be prestigious, cheap and cheerful, aimed at the younger or slightly older generation? Anybody can farm out space but getting the tenant mix correct is absolutely critical.

You look at some centres and just filling the space seems to be the number one priority. But if you look at the most successful malls around the country the tenant mix has been very carefully thought out and crafted based on the demographic. Conversely, if you look at the tenant mix at a less successful mall, there may be one or two tenants there that suit but the rest is not right for the demographic.

The tenant mix is all important and once this is established it then becomes a lot easier to move forward with the letting of the space.

It is also essential to have a data system in place – this is no longer a luxury option, but is a basic requirement that could significantly improve the bottom line.

The past performance of potential tenants can be reviewed at the touch of a button as well as projections for future performance. Suddenly picking the right tenant to fill the units becomes a lot easier.

It gives the landlord complete control over that process. There could be three tenants eyeing the one unit, tenant A, B and C. The data lets you see what tenant A generates in turnover, compared to B and C. But it could also be factored in that tenant B will be paying a higher base rent – providing more of a guarantee. But then B may also have a more expensive fit-out, so more of an upfront cost. And tenant C may be in the middle of the two.

All this information – the cost of putting them in, their performance over the years, potential future performance and so on – is in the system and from which a tenant is chosen.

The data will also report on current performance and identify any problems within the mall. Crucially, it can also provide an overview of the performance of the space against the value of the space to help forge a turnover lease agreement that works for landlord and retailer.

Information is crucial for making key management decisions. At the moment landlords struggle and that’s because they don’t have the systems and the reporting in place to tell them what’s going on and why it’s going on.

There could be an old legacy property management system in place with excel spreadsheets and disparate third party software and none of it gets tied together.  Decisions may be made on a whim or what they feel is right rather than on evidence and ultimately means that the performance of the mall will suffer, footfall will drop and landlords will make less money.

Having the systems in place means decisions can be made with confidence and on a factual basis rather than on a gut feeling. Of course, there are no magic wands that can be waved and suddenly a failing shopping centre is transformed into a successful one. What the systems and data do is highlight problems that need rectifying – and help property professionals makes the decisions necessary to improve the performance of their buildings.

And it all comes back to the reason and identity of the centre itself: ensuring decisions are made with the target audience in mind, rather than taking the view that units are simply space to rent out. There’s a science to this – and good data management and analysis makes that possible.