Robert Bonwell explains why asset managers are paying more attention than ever to the power of a scientific leasing strategy.
The cornerstone of any shopping centre asset is the asset manager – responsible for driving and enhancing the value of the asset. Their asset manager’s client could be an institutional fund, REIT, private equity group, sovereign wealth fund, a bank, developer, debt or equity provider and they are looking for value regardless of the economic or property cycle.
The asset manager has many levers at their disposal but power over the retailer – who create the vast majority of the income – is paramount. Outside the timing of the cyclical investment market conditions, the driving of retailer performance to enhance revenue growth is fundamental to the success of any retail asset.
Many descriptions exist – new leasing, tenant mix, re-leasing, repositioning, new concepts, new entertainment opportunities…but it all comes down to the combination of footfall, dwell time, purchasing power and retailer/ operator performance. Converting this into rental income and adding value is where the leasing team comes in.
In a world of many challenges and changes for physical retail space, access to a wealth of intelligence around the key trends impacting retailers’ decisions and economic models is crucial. What’s the effect of urbanisation and population/demographic change having on the strategy of the retailer? With multi-speed economic growth in all corners of the globe, where is the retailer prioritising and how will they enter or continue in a market? When it comes to e-commerce, how does the retailers’ model for online market penetration link to the physical store (what’s their online strategy, their ability to invest and logistical support for the store?). How much of a challenge does dealing with big data present? And what is useful to retailers’ to help them with their financial modelling?
Retail concepts are continually being redefined. Hotels, airports, transport hubs, mixed use developments, pop-up shops, outlet centres – all have the power to drive footfall, dwell time and, ultimately, dollar spend.
This increasing scale and variance of retail space requires greater leasing intelligence and the combination of specialist skills. Leasing used to be about selecting the retailers from various categories, creating a tenant mix and understanding the drive times and spending power of the region but for today’s asset manager, leasing has to be forensic, continuously assessed against performance, change and opportunities. Long gone are the days when leasing teams and asset managers operated as separate teams. For the leasing team, and the asset manager, alignment and understanding of what the owner is trying to achieve is essential: is it a short term hold and exit? How do we build for sustainable long term rental growth? How will the asset valuers assess the changes made? What additional investment in the shopping centre will continually support its growth?
Asset management and retail leasing is the powerful combination for successful retail places. The trusted partnership and a scientific approach to retail industry intelligence between the shopping centre asset manager and leasing team are prerequisite in enhancing the performance and value of any shopping centre or retail destination.