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Retail Property Managers – How to Track Financial Performance of Your Tenant Mix

The performance of a retail property is not just about the rent or the net return. There are a number of other things that come into the financial performance equation. When you identify the right financial benchmarks to track, you can see and set the performance of the retail property that the landlord requires. It also helps you set and drive a better tenant mix strategy.

When the tracking of financial performance is neglected, you quickly see the Retail Property and cash flow disintegrate and destabilize.

Here are a few key facts and trends to track in the financial performance of a retail property.

  1. Get the trade numbers and turnover figures off your tenants on a weekly and monthly basis. In doing this be sensitive to confidentiality. Only you as the property manager and the landlord should see and analyse the figures. From these figures monitor trends in the trade of tenant groups. If one tenant group is trading better than others then you know you have an issue with the tenant mix. That then comes down to a decision as to what the customer requires and why you are not serving it. Consideration regards the demographics of the shopper then become critical at the time of lease renewal or letting of vacant area.
  2. With Retail Property, outgoings and occupancy costs are critical to the landlord and the tenant from different directions. The landlord wants a better net return, and the tenant wants a viable business. Uncontrolled or escalating outgoings can destroy both. This then suggests that the outgoings for a Retail Property should be carefully monitored and compared to properties in the area of similar type. Higher property outgoings will also remove your competitive edge when leasing vacant areas.
  3. Tenants know what they should pay when it comes to occupancy costs. The outgoings costs in Retail Property are generally higher when compared to other types of Investment Property. This is due to the higher levels of presentation and property performance generated from and the result of customer and tenant interaction. A busy shopping centre will always have higher outgoings simply because of the demand on daily presentation. More people through the property means higher costs of running.
  4. Every Retail Property should have a property budget. In that budget all matters of income and expenditure should be tracked throughout the year. When it comes to income, this is easily achieved from an analysis of all the leases given the trends in the property market. When it comes to expenditure, this tracking process will be achieved from history of expenditure together with acceptable predictions of cost escalations in the region.
  5. The tenancy mix of the property should be broken into regions or zones based on the property design and layout. The turnover figures should then be tracked within those regions or zones. What you’re looking for is a significant difference in turnover trending between zones. This will tell you when customers prefer to shop in particular parts of the property. There will be reasons behind this that have to be identified.
  6. Municipal rates and taxes are a significant cost burden on the operation of a Retail Property. They are what we call uncontrollable outgoings because they are dictated by the local municipal council. The rates will normally be set by some equation centred on the unimproved value of the property. This then says that when the property is valued you have to be very mindful of any ability to challenge the value set by the municipal council. Whilst it might be very nice to have a highly valued property, it will reflect straight through to the outgoings and impact both the landlord and the tenant. It is notable and of some concern that the rates and taxes for a Retail Property are generally over 1/3 of the outgoings costs. Any savings you can make in this area will significantly impact the net return for the landlord.
  7. Track the vacancy trends in the property so that you know and see the potential drain on cash flow that a vacancy can create in the future. Proactive landlords and property managers tend to work well ahead of any vacancies and leasing problems. This is usually 24 months away from the event. It allows you to make key decisions and changes as appropriate. It also allows you to make changes in the tenancy mix if that is required.
  8. In any older property the requirements of refurbishment and redevelopment will be critical to the property business plan and ongoing customer visitation. The lease for the older Retail Property and all the tenancies contained therein should integrate terms and conditions that allow the landlord to refurbishing and redevelopment as required. Give due regard to the requirements and impact of local legislation as it applies to retail premises. Some locations have specific rules and regulations when it comes to renovation, relocation, and refurbishment.
  9. Rental trends for similar properties will always be of interest and relevance. It is common in Retail Property to have both net and gross rentals. It is important that the levels of rental income in comparable properties are similar to yours. You do not want a standalone as the best retail property with the highest occupancy costs in the region. That is a recipe for a vacancy escalation. Stay within the averages when it comes to occupancy costs, rentals, and outgoings.
  10. Stay on top of the trends in the local area that the property serves. Understand the demographics of your shopper and any changes that could be occurring therein. Understand any changes in the transport, freeways and highways, and economic sentiment in the region. As the region changes, then the property should also change to suit.

So the tracking of financial performance in a Retail Property involves a number of key issues and factors. When you use sound business practices to identify trends, you help your property to perform more effectively for the landlord. Good decisions can be made, and the business plan for the property becomes more achievable.