As featured on GlobeSt.com, April 29, 2015
TUSTIN—No longer desperate to fill vacant square footage, retail landlords nationwide are developing sophisticated merchandising strategies to craft the ideal tenant mix for their centers, Coreland Cos.’ president Chris Hite tells GlobeSt.com. We spoke with Hite about some of those strategies and how they help landlords remain competitive in the retail sector.
GlobeSt.com: With occupancy levels so high in many major markets, where should landlords be focusing their energies to increase returns and enhance value?
Hite: You have to be looking critically at all of your tenants, and in particular, actively reviewing tenant sales. Ideally, landlords should be receiving sales figures from their tenants, and if not, they should be putting that requirement to report back into their leases as they negotiate renewals. The improved economy has restored stability. We can now begin to analyze tenants from a content and operational perspective. We can ask ourselves: are they doing a good job of driving sales and traffic?
Naturally, landlords want to reach a level of stability so that energies can be focused on raising rents as the primary driver of returns. To that end, it is also important to strategically manage pre-negotiated lease options. Be ahead of the curve. It might behoove you to let those options lapse. Take a hard look at the operational piece. What sort of things did you give away in the downturn that you now want to take back? Did you give anything in terms of CAM caps or other things that are putting downward pressure on your triple-net reimbursements? All of this goes to NOI just as rent does.
GlobeSt.com: How does having a great merchandising strategy enhance a shopping center’s tenant synergy?
Hite: We’re no longer talking about just filling space. Merchandising is a way of crafting your tenant mix—a way of figuring out which tenant needs to be next to another to enhance synergy. For example, you might have a destination tenant that doesn’t need to be front-and-center. That tenant can be relocated to free up space that would allow you to enhance a food area or group similar services.
We’re currently working on a center in Denver that had a grouping of mom-and-pop local shop space in a prime location. We successfully relocated all of those tenants into other spaces and we’re in the process of rehabbing the vacant space to accommodate a national specialty grocer. That’s the kind of creative thinking today’s owners should be focusing on.
GlobeSt.com: Is it more important to focus on maximizing the value of your center today, or positioning it for the future—say, 10 or 15 years out?
Hite: It depends on the type of center you have, but you really can’t change today. Today is the result of what you did three to five years ago. You always need to be looking five years out, and continuously analyzing your property in terms of aesthetics, merchandising and category growth trends.
It’s hard to predict what’s going to be the next big retail trend. In the food category, we had yogurt, then burgers, and now DIY pizza with successful concepts like Blaze, Pieology, Pie Five and 850 Degrees. Health and wellness is a tremendous growth category. Consumers want goods and services delivered in a convenient, personalized and experiential way. Integrating specialty gyms and unique grocers can deliver that experience to niche audiences.
GlobeSt.com: With the industry changing at such a rapid pace, how are landlords supposed to keep up and stay ahead of the curve?
Hite: I can’t emphasize it enough that you have to be a student of the craft and be willing to take risks with new concepts that will keep you ahead of the curve. We see established ownership groups across the country pushing the envelope every day to stay ahead of this constantly evolving industry. You can see it within the portfolios of Donahue Schriber, Forest City, The Irvine Company and Federal Realty, just as an example.
I was recently at the Flower Hill Promenade in Del Mar, CA, where they have introduced the ROW Collective. They have creatively made use of the lowest-level space by subdividing it into 100-square-foot to 200-square-foot pop-up-type spaces to incubate tenants. The coolest part was a sign on one of the spaces that read, “Moving Upstairs,” which is exactly what you want. They are taking less-established tenants and promoting them to the more prominent spaces once they have established their businesses. It’s a very creative way to ‘test’ new concepts, while providing unique customer experiences.
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