Last Updated on October 8, 2023 by Morgan Beard
Many retail tenants have robust expansion growth plans right now. So, finding the right location for your business is crucial to revenue and brand success. Real estate portfolio management is an essential component of this process, as it can help you navigate the complex world of retail real estate and ensure your business finds success with new stores.
Real estate portfolio management is critical for retail tenants as it helps them manage, negotiate and make decisions on specific retail locations. The right real estate management practices can make a significant difference to the success of a business.
Understanding the Retail Real Estate Market
First and foremost, it is essential to understand the real estate market in order to effectively manage your lease portfolio and expansion goals. The retail landscape is a dynamic ecosystem where brick-and-mortar establishments, like mixed-use properties, outdoor malls, lifestyle centers, factory outlets, grocery stores, quick-service restaurants, department stores etc., all serve the shopper in a different manner. Understanding how your retail brand fits into the tenant mix and optimizing your space choices based on your customers’ shopping experience is key.
As a lease portfolio manager, it is crucial to grasp the intricacies of this landscape to make informed decisions and strategic real estate investments. The commercial real estate industry is largely connected to the current economic climate, so factors like financial stability, community development, lower rent conversations are all intimately tied to the economy. By staying abreast of market research, industry reports, and demographic data, you can identify emerging retail trends and consumer preferences specific to the brick-and-mortar sector. This knowledge empowers you to curate a tenant mix that aligns with the evolving needs and expectations of shoppers, while also accounting for location-specific factors such as foot traffic, competition, and local regulations.
Moreover, comprehending the retail market and its impact on brick-and-mortar establishments is essential for anticipating challenges and identifying opportunities within strip malls, shopping centers and all retail spaces. With the rise of e-commerce and technological advancements, and changed consumer expectations post-covid — the retail landscape has witnessed a transformative evolution. By staying informed about consumer behavior and customer experience demands, you can proactively seek out innovative retail space that cater to the demands of the modern shopper. This understanding enables you to adapt your portfolio management strategies, ensuring that your brick-and-mortar properties remain attractive and relevant.
Effective Lease Negotiation and Management
Effective lease negotiation and management are crucial aspects of successful retail tenant portfolio management. When negotiating lease terms with your landlord, it is essential to consider key factors that can impact the value, bottomline costs, and any risks associated with the agreement. This includes analyzing market conditions, such as rental rates in the area and the demand for retail space, to determine a fair and competitive lease rate. It is also important to understand the lease structure in order to maximize your value and minimize risks as a retail tenant. This involves considering lease terms:
- Is a long-term lease favorable for your business?
- Do you understand the financial obligations of a percentage rent lease?
- Or is a pop-up shop and short-term lease agreement best for your retail storefront?
By understanding your lease strategy per geographic location, you can create mutually beneficial lease agreements that cater to both parties’ requirements and have clarity on where to negotiate your terms. As commercial tenants begin to execute on robust real estate expansion plans over 2023 and the subsequent years, property owners have the upper hand on negotiating lease terms as retail vacancies are sitting at sub 6%. That’s the lowest over the past 15 years. This is creating a more competitive market for multiple retail categories as national tenants work to secure new physical retail storefronts.
Ongoing lease management strategies play a vital role in creating a positive landlord-tenant professional relationship. This involves adding visibility surrounding maintenance responsibility, insights into tenant rights and obligations as well as quickly accessing real estate clauses by lease. Implementing a systematic approach to lease administration, including accurate record-keeping, financial forecasting, and proactive lease renewal timelines, ensures smooth operations and minimizes potential disputes. Regularly reviewing lease agreements and staying updated on relevant legal and regulatory changes allows for proactive adjustments to lease terms when necessary, ensuring compliance and protecting the interests of both parties involved.
Optimizing Retail Tenant Performance
Optimizing retail tenant performance is a crucial aspect of effective real estate portfolio management. It involves implementing strategies and initiatives to enhance the success, profitability, and overall performance of your retail space. Believe it or not, 80% of retail sales transactions are facilitated in a brick and mortar storefront. That doesn’t mean e-commerce isn’t working. In fact, quite the opposite. There is a network effect between the e-commerce and the in-store retail experience. ICSC found that opening a new storefront increases digital web traffic to that retailer’s website by an average of 37%.
So, one question for retailers to answer is how does your brand exude itself in brick and mortar stores and does that facilitate a cohesive online to offline retail experience for the shopper? One key strategy for optimizing retail tenant performance is to clearly understand your brand, and work to make sure the customer experience is seamless both in-store and via e-commerce channels. How can a retail tenant work to do this?
Establish clear performance metrics and benchmarks. By defining key performance indicators (KPIs) specific to each tenant, you can measure and track their performance over time. These metrics may include sales growth, foot traffic, customer conversion rates, average transaction value, and tenant occupancy costs. Regularly monitoring these metrics allows you to identify trends, spot areas for improvement, and take proactive measures to address any performance gaps.
Flexibility and Technology in Retail Portfolio Management
Flexibility and adaptability are vital components of successful retail portfolio management. The retail industry is subject to constant change, influenced by evolving consumer preferences, market trends, and technological advancements. In order to effectively manage a retail portfolio, it is crucial to embrace proptech tooling in response to these dynamic factors.
This includes being open to innovative ideas, embracing new technologies, and proactively adjusting strategies to meet the changing needs of the market and tenants. By leveraging lease management software, you are cultivating a flexible mindset. All lease data is a few clicks away and enables retail real estate portfolio managers to quickly navigate uncertainties, capitalize on emerging opportunities, and ensure the long-term viability and success of their retail portfolio.
If you are still using spreadsheets, PDF documents or a legacy techstack, how quickly can you answer these questions?
- Does our Boston lease have a termination clause?
- When is the rent escalation on our flagship shop in New York?
- Does CAM affect our retail lease in Miami?
- How many of our leases are percentage rent leases?
- Do we know when our right to expand on our retail warehouse expires?
A lease management platform that provides insights into your retail real estate rights, obligations, financials, and tasks is a table stakes tool in 2023 and beyond. In addition, the retail real estate landscape is continually evolving. Traditional brick and mortar stores are being complemented by alternative formats such as pop-up shops, mobile retail units, experiential concepts and mixed-use community-oriented retail. Implementing flexibility and technology in your retail tenant portfolio management strategy is imperative for retail success.
Retail Portfolio Management Summary
Managing and scaling a retail portfolio successfully requires a deep understanding of the retail real estate market, effective lease management and negotiation, as well as a focus on optimizing the retail experience. Adopting a flexible mindset and a technology-driven approach will empower your real estate team to stay nimble with evolving trends and make data-driven decisions.
Understanding the nuances of retail tenant portfolio management sets your business up for real estate market success and business growth! Occupier helps retail tenants like Claires, Marine Layer, Bonobos, Shake Shack and many others optimize their real estate portfolio management processes. Schedule a demo with one of our in-house experts to learn how lease management software can help you hit those expansion goals and take control of your real estate portfolio.