Slide 1: THE HONG KONG INSTITUTE OF
SURVEYORS
JUNIOR ORGANISATION – Pre-Qualification Structured Learning
Leasing Strategy of a Shopping Centre
Date: 29 Jun 2002
Speaker: Ivan Ng, Government Property Agency
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Contents
• Part 1 • Part 2 • Part 3 • Part 4 • Part 5 Types of shopping centre Leasing strategy for a new shopping centre Tenancy administration Past examination exercise Q&A
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Part 1 Types of Shopping Centre
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1. Types of Shopping Centre • Territorial - Festival Walk, Times Square, Pacific Place • District -- Tuen Mun Plaza, Dragon Ctr • Local/Neigbourhood -- Wong Tai Sin Estate Shopping Centre • Thematic -- Golden Shopping Ctr
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1.1 Determination of Types of Shopping Centre • • • • • By location (district/accessibility) By size By quality and quantity of customers By quality and quantity of tenants By the Landlord’s intention
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Part 2 Leasing strategy for a new shopping centre
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2. Leasing strategy for a new shopping centre • What do we want? • Location factors - transportation, competitors, complimentary facilities • Demographic factors - population, income group, age…. etc who would come and what do they want? • Design - numbers of shops and sizes
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2. Leasing strategy for a new shopping centre • Tenant mix (by categories) • Anchor tenant - don’t be dominated by Department store • Chain stores/Unique stores • Entertainment facilities • Location of tenants e.g. foodcourt etc. • In US, large department stores at both ends with small shops along the passageway
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2. Leasing strategy for a new shopping centre • Terms and conditions - both risky at the beginning, therefore a lower base rent + higher t/o rent and longer rent-free period (to maintain a higher rent image) • Fit-out coordination • Management, cleaning and security - inhouse vs contract out • Marketing and promotion
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2. Leasing strategy for a new shopping centre • • • • Leasing process Finding tenant - by Landlord or thru Agent Agreed on location, term, use, area on rent Sign the offer (binding) - payment of first month’s rent and deposit • Fitting out • Signed the Tenancy Agreement (usually later than possession date) • Stamping
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2. Leasing strategy for a new shopping centre • • • • • Tenant Mix by categories by location by size by price
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2. Leasing strategy for a new shopping centre • How to determine the tenant mix? • Where you are (position) and what do shoppers want to find in your centre ? • By survey, observation and analysis • Design of trade mix • Anchor tenant : department store • Category killers
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2. Leasing strategy for a new shopping centre
Class Shoppers
High
Gucci Swank D&G
Middle
Crocodile
Low
Price
Low
Middle
High
Cityplaza
Pacific Place
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2. Leasing strategy for a new shopping centre • • • • Chain store or theme store Food and beverage - restaurant or food court Entertainment - ice rink, cinema, bowling centre Apparel/cosmetics, F & B???
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2. Leasing strategy for a new shopping centre
• Turnover Rent (a profit sharing basis) • Mechanism - base rent or a % of the Turnover (gross receipt), whichever is the higher • On annual basis but receive monthly (to reflect season fluctuation) • Merits: • from Landlord’s point of view: while there is a guarantee of minimum income, the Landlord can receive more if the business is better than expected
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2. Leasing strategy for a new shopping centre
• From Tenant’s point of view: can pay a lower base rent while the Landlord will take initiative to do more marketing and promotion to increase the sales to achieve a higher real rental • Mechanism : receive the t/o figure every month and then at the end of the year receive the audited report to do the annual reconciliation
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2. Leasing strategy for a new shopping centre
• • • • Tenancy Agreement Terms -usually 3 years certain Why? Excluding from Part V of Landlord and Tenant Consolidation Ordinance -- 6 mths NTQ – Exclusion: A tenancy agreement for a fixed term of three or more years “ which contains no provision for earlier termination… other than for breach”
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2. Leasing strategy for a new shopping centre
• Excluding from Land Registration Ordinance S.(3)(2) – All such deeds, conveyances, and other instruments in writing, and judgments, as last aforesaid, which are not registered shall, as against any subsequent bona fide purchaser or mortgagee for valuable consideration of the same parcels of ground, tenements, or premises, be absolutely null and void to all intents and purposes: – Provided that nothing herein contained shall extend to bona fide leases at rack rent for any term not exceeding 3 years.
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2. Leasing strategy for a new shopping centre
• No need to be by Deed -- Conveyancing and Property Ordinance S.4(2)(d): – (exclusion): the grant, disposal or surrender of a lease taking effect in possession for a term not exceeding 3 years (whether or not the lessee is given power to extend the term) at the best rent which can be reasonably obtained without a premium;
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2. Leasing strategy for a new shopping centre • Valuation of Shop • Comparison method - nearby shops of same categories, rateable value etc. • Zoning method • Vacant and to let? Should the shops next to each other will have same unit rent? • But in reality not, as there is a tenant mix?
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Part 3 Tenancy Administration
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3.1 Tenancy Agreement • • • • Terms Area? State or not? Referring to plan? Rent: including what? Any rent-free period, how to assess? Management or A/C charges during rent-free, what provision does given during rent-free
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3.1 Tenancy Agreement • Termination and break clauses • Rent review- refer to arbitrator or expert witness
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3.1 Tenancy Agreement
• • • • • • • Expert Witness usually professional relies on own judgement for decision may be sued for negligence appeal can be made on valuation error simpler procedure fee is various • • • • • • • Arbitrator may not be profession made judgement on evidence submitted immune from proceeding appeal only on point of law cumbersome procedure fee follows the scale of fee
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3.1 Tenancy Agreement • Option to renew • Users requirement? Whether other use require landlord’s approval? • Submission of gross receipt for T/O rent • Landlord’s obligation • Insurance and Indemnification
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3.1 Tenancy Agreement • Tenant’s obligation • Maintenance responsibility -- usually landlord be responsible for external and structural while tenant to non-structural and internal repair • Sub-letting • Stamp Duty
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3.2 Technical and Management issues • • • • • • Fitting out requirement MOE requirement Air-conditioning provision Electricity provision Location of lifts and escalators Directional sign - directory and ceiling hanged
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3.2 Technical and Management issues • • • • • • • Toilets facilities Telephone ? Where and how many ? Types ATM machine/bank Seats Landscaping Ambient music Odour or smell
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3.2 Technical and Management issues • Marketing and Promotion • Regular events e.g. fashion show, car exhibition, lucky draw, seasonal greetings • VIP card to patronage - given respect for frequent shoppers
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3.3 Tenant mix review • Budgeting at the end of each year • Review the performance of the centre and the tenant’s performance, by categories and unit sale • 3 “R” • Renew, Relocate, Remove
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3.3 Tenant mix review • • • • • • Sales Performance Rental Payment Management Problem Financial Status Competition with others Any new replacement through application list or in the market • Magazines, Agents, etc.
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3.4 Interesting tips for Shopping Centre • Shopfront – transparent, signage, glass door, door handle etc. • Shopfront design, attractiveness • Decoration, routine or seasonal • Flower pot, seats • Directory - Pamphlet
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3.4 Interesting tips for Shopping Centre
• • • • • •
Information Desk Toilets Foodcourt location Restaurants - types and location Chain stores Dept Store/Hypermarket as anchor tenant
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3.4 Interesting tips for Shopping Centre
• • • •
Display area Booth/kiosk Ambience music Skylight
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3.4 Interesting tips for Shopping Centre
• • • • •
4 “P” Place Price People Promotion
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3.4 Interesting tips for Shopping Centre
• • • • •
New Concept for Retail Leasing -- 4 “R” Relationship - VIP for loyal customer Retrenchment - Use IT technology Relevancy - create an image Rewards - give something back to shoppers
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Thank You!
