Among the key strategies to strengthen tenant relationships is investing in property maintenance to ensure a positive environment for tenants and their customers, shares Coreland’s Tanya Keshishian with ICSC.
By Joe Gose | April 19, 2023 | As published by ICSC C+CT
It’s cheaper to keep a good tenant than to replace one when figuring in commission fees, potential tenant improvement dollars, the creditworthiness of a new tenant and how that tenant might affect the merchandising mix. So why do good retailers decide to leave, and what can landlords do to mitigate their departures?
Occupancy Costs
Today’s U.S. retail property fundamentals indicate a landlord’s market. The average availability rate of 4.9% in the fourth quarter was 170 basis points lower than two years prior, for example, and new completions dropped 140% from their 10-year quarterly average, according to CBRE. Those metrics drove an average 7.4% increase in rental rates over an 18-month period to nearly $23 per square foot at the end of 2022, according to Cushman & Wakefield.
But owners may scare off retailers if they hike rents too aggressively, experts agreed. “Tenant retention is all about the landlord being cognizant of tenant sales, tenant performance and tenant occupancy costs,” said RCS Real Estate Advisors managing director Ed Coury. “Rent pressure is the No. 1 reason we see our clients leaving shopping centers.”
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Competition from Other Properties
Though new shopping center completions are subdued, savvy developers are rehabbing tired but well-located strip and neighborhood centers in hot markets, a trend that’s giving tenants alternatives to traditionally dominant properties, Coury said. Often, the developers are recruiting up-and-coming health and wellness brands, as well as chef-driven restaurant concepts. “We’re doing a top-down analysis of every center we’re in,” Coury revealed. “We want to know if we’re in the best center today, whether it will be the best center tomorrow, what’s new in the market, what are the alternatives and where we want to be for the long term.”
It’s important for landlords to know what incentives or amenities their competitors are offering and whether they appeal enough to lure existing tenants away, said Coreland Cos. vice president of real estate management Tanya Keshishian. Getting that information requires building relationships with numerous brokers in the market, she added.
Landlords also are upgrading centers to stay competitive, said Samantha Bennett, an associate principal with architecture firm Cooper Carry. In 2021, she worked with Federal to overhaul the REIT’s 144,000-square-foot Birch & Broad in Falls Church, Virginia. The rehab included whitewashing the brick facade, adding copper coloring at tenant entrances, installing new awnings, improving visibility and access to alleyway stores, and creating a public space for outdoor dining and other activities. “Property improvements are a good, cost-effective first step to not only improve the existing tenant experience and maybe attract new tenants but to also show that the property owners are invested in the community,” she said. “It’s something that’s becoming much more prevalent.”
Property Maintenance and Safety
A poorly maintained shopping center can turn off shoppers. That includes a lack not only of regular cleaning but also of security, lighting and parking. “Landlords need to invest the money needed to take care of their properties and keep their tenants and customers in a positive environment,” Keshishian said. “If they don’t feel safe or if there are bad odors that deter customers from coming because the trash isn’t being picked up, then that’s another reason tenants might want to relocate.”
Therefore, it’s important that shopping center owners manage their vendors effectively, she advised. Additionally, Coreland generally counsels landlords to invest in 24-hour video security systems, along with security guards during operating hours. While costly amid labor shortages, Keshishian acknowledged, security guards provide personalized attention that tenants appreciate.
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