Tenant mix

R ES E S EA E A RC R C H P AP A P ER ER S

September 2002 Volume 4, Number 14

Managing tenant mix in shopping centres in the United Kingdom

Mary Lou Downie, Peter Fisher and Cheryl Williamson Northumbria University, Newcastle upon Tyne

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The RICS Foundation Research Paper Series Editor Dr Les Ruddock School of Construction & Property Management University of Salford Salford Lancs M5 4WT United Kingdom Tel: +44 (0)161 295 4208 Fax: +44 (0)161 295 5011 Email: [email protected] Panel of referees Ghassan Aouad University of Salford Paul Bowen University of Cape Town Peter Brandon University of Salford Jose Luis Caramelo Gomes Escola Superior de Actividades Imobiliarias Jean Carassus Centre Scientifique et Technique du Batiment David Chapman University College London

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Paul Chynoweth University of Salford Neil Crosby University of Reading Mervyn Dobbin De Montfort University Brian Eksteen University of Port Elizabeth Chris Eves University of Western Sydney John Eyre University of Exeter Timothy Felton University of Plymouth Dominique Fischer Curtin University of Technology Richard Grover Oxford Brookes University Stephen Hargitay University of the West of England Malcolm Hollis Malcolm Hollis Consultants Mike Hoxley Anglia Polytechnic University

David Lewis Harper Adams University College Colin Lizieri University of Reading Jorge Lopes Instituto Politecnico de Broganca John MacFarlane University of Western Sydney David Mackmin Sheffield Hallam University Nick Millard Bruton Knowles John Moohan Nottingham Trent University Bev Nutt University College London Jacob Opadeyi University of the West Indies Martin Pearson University of Northumbria at Newcastle Steve Pearson South Bank University Srinath Perera University of Moratuwa John Perry University of Birmingham Martin Sexton University of Salford Li Shirong Chongqing Jianzhu University Martin Skitmore Queensland University of Technology Martin Smith University of Nottingham Alan Spedding University of the West of England Peter Swallow De Montfort University Julian Swindell Royal Agricultural College Carlos Torres Formoso NORIE/UFRGS Thomas Uher University of New South Wales Tony Walker Hong Kong University Ian Watson University of Salford

Contents

Introduction

5

The concept of tenant mix

5

Comparison goods

6

Convenience goods

6

Anchor tenants

6

Main space users

7

What is expected of tenant mix?

7

Attracting and retaining shoppers

7

Differentiating between shopping centres

8

Creating an exciting shopping experience

8

Pedestrian flow

8

Managing retail tenant mix

9

The pressure for tenant mix change

9

Management structures

9

Monitoring tenant mix

9

Proactive management

9

Lease management case law

10

Lease length and security

10

Research methodology

11

Research results

12

Evolving tenant mix

12

Location of stores

13

Policies for managing tenant mix

14

Monitoring tenant mix effectiveness

15

Implementing tenant mix policy

16

Tenant mix obsolescence

17

Summary and conclusions

19

Summary

19

The future direction of tenant mix management

20

Future research

20

Bibliography

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Managing tenant mix in shopping centres in the United Kingdom

Mary Lou Downie, Peter Fisher and Cheryl Williamson Williamson Northumbria University, Newcastle upon Tyne, United Kingdom

Abstract

The variety and location location of retailers within a group group of shops, known as tenant mix , has been identified as a critical factor in the success or failure of purpose-built shopping centres. There have been numerous studies made of the impact tenant mix can have on profitability, but less is known about the way in which landlordinvestors approach the allocation of leases within shopping centres. This study aims to increase understanding of how they perceive and manage tenant mix. The report is based upon findings from in-depth interviews with investor-landlords, asset managers and letting agents, together with a larger questionnaire survey of asset managers and investors. The research is supported by a comprehensive review of existing literature. The report finds that: ¥

In terms of maintaining an effective tenant tenant mix, landlords landlords consider the anchor anchor stores - those large enough and and established enough to be shopper destinations in their own right - to be the most crucial factor.

¥

When deciding deciding upon upon the location location of tenants tenants and shop shop units within within a centre, interview interview and and survey respon respondents dents prioritise whole centre prioritise centre issues such such as pedestr pedestrian ian flow over over retailer retailer micro-loc micro-location ation

¥

In a majority of cases cases tenant tenant mix policies policies are informal, informal, despite despite the need need to produce produce written evidenc evidencee of such policies as a defence policies defence agains againstt undesirab undesirable le lease assign assignments ments by by tenants. tenants.

¥

Turnover indices and shopper surveys surveys are the main methods used used to monitor monitor the success success of tenant tenant mix policies. policies. Monitoring is usually at sufficiently frequent intervals to highlight any changes in circumstances. However, policy polic y reviews are more irregular and dependent upon stimuli such as tenant change, suggesting that monitoring is not necessarily used to initiate initi ate change where necessary.

The study concludes with recommendations on how shopping centre managers can make improvements to tenant mix policies. Such changes would ensure that shopping centres are more sensitive to consumer trends, maintaining an evolving tenant mix through proactive, responsive and flexible management. Received February 2001 Revised and accepted August 2001

Contact

School of Built Environment

Acknowledgements

Northumbria University

The British Council of Shopping Centres

Ellison Building

The interviewees listed in Appendix A

Ellison Place

The respondents listed in Appendix B

Newcastle upon Tyne NE1 8ST T: +44 (0)191 227 4722 F: +44 (0)191 227 3167 E: [email protected] E: [email protected] E: [email protected]

MANAGING TENANT MIX IN SHOPPING CENTRES IN THE UNITED KINGDOM

1

2

Introduction

The concept of tenant mix

Tenant mix has been identified as a critical factor in the success

Abratt et al (1985) al (1985) provide probably the most comprehensive

or failure of purpose-built shopping centres (McGoldrick 1992)

list of the objectives and principles of tenant mix available.

(hereafter occasionally occasionally referred referred to solely as centres ). Within Within

They rely on the definition provided by Kaylin (1973):

the literature specifically addressing tenant mix, various approaches have been taken. Abratt et al (1985), al (1985), Greenspan

"Tenant mix refers to the combination of business

(1987) and Bruwer (1997) provide descriptions of the principles

establishments occupying space in a shopping centre to

upon which tenant mix should be based, with the objective of

form an an assembl assemblage age that that pro produc duces es optimu optimum m sales, sales, rents rents,,

advising shopping centre owners on how to maximise the

service serv ice to the commu community nity and and financ financiabi iability lity of of the

success of their assets. CALUS (1975), Kirkup and Rafiq

shopping shop ping cent centre re ventu venture. re." "

(1994) and Bruwer (1997) offer case studies of centres, analysing the strengths and weaknesses of their individual

Greenspan (1987), writing from the perspective of a leasing

tenant mixes. Brown (1993) includes a discussion of tenant mix

manager, describes a good tenant mix as a variety of stores that

in his review review of the theoretical bases bases of retailers retailers location

work together to enhance the centre centre s performance and operate operate

decision-making at the micro level, identifying both demand

successfully as individual businesses.

and supply-side determinants. He considers the shopping centre landlord s creation and management management of tenant mix as the most

These descriptions of tenant mix stress the underlying objective

important supply-side influence on retail location at the micro

of maximising shopping centre profitability, and are therefore

level. Despite this important role, little systematic research research has

investor-orientated. They identify the key to maximising

been conducted conducted into landlord or investor investor perceptions of tenant tenant

profitability, profitability, which is maximisation of sales through through provision

mix and methods of managing it. According to Brown (1993),

of the optimum service to the community. The concept of

this is part of a general lack of research into the issue of retail

tenant mix design therefore involves provision of a range of

micro-location.

merchandise and services, carefully chosen to appeal to the catchment shopping population, as described by Bruwer

This study attempts to increase understanding of how investor-

(1997). These services may include restaurants and other

landlords perceive tenant mix and particularly of how they

catering outlets, and increasingly they also include leisure

manage it. Shopping centres inevitably pass from the status of

facilities such as cinemas (Abratt et al 1985; al 1985; Yap 1996;

new assets, designed to accommodate state-of-the-art retail

Roberts and Melvin 1999). In discussions of tenant mix, the

practice, and decline decline into degrees of functional functional obsolescence. obsolescence. In

provision of different different types of merchandise merchandise is almost always

order to maintain asset value, landlords need to monitor and

replaced by a proxy — namely various categories of retailer — in

adjust the tenant mix, but are constrained by the inertia of

order to classify the merchandise on offer. Classifications focus

existing physical and legal arrangements.

on characteristics such as price and quality, appeal to different lifestyle groups, and service levels.

The research was carried out by means of in-depth interviews with investor-landlords, their asset managers and letting agents,

Kirkup and Rafiq (1994) provide a measurement-orientated

followed by a larger questionnaire survey of asset managers and

description of tenant mix as:

investors. A review of the existing literature literature in Sections 2, 3 and 4 precedes a description of the methodology in Section 5 and a report of the results in Section 6.

...a combination of factors, including the proportion of spacee or number spac number of units units occupi occupied ed by diffe differe rent nt retail/service types, as well as the relative placement of tenants in the centre centre..


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Brown (1993) suggests that although there are many possible

massive swing towards domination of comparison shopping by

classification systems available for these retail/service types,

multiple retailers, increasing their share by over 40% since the

and some have been in use for long periods, they are all flawed.

1960s. Teale (1997) suggests this results from the multiples

In addition he believes that the choice of classification

taking the bulk of space in new shopping centre developments

influences our analysis of the tenant mix and of the underlying

over that period.

forces which bring it about. This aspect of the subject makes it particularly resistant resistant to analysis.

As Nelson (1958) pointed out, the mutual proximity of compatible retailers, as well as their business volumes, are

The definitions above draw attention not only to the mix of

important in raising sales through comparison retail clustering.

retail types offered, but also to the relative placement of the

The concept of comparison shopping used in tenant mix

retailers.

management therefore has to include not only the selection of tenants, but their relative locations within the centre.

COMPARISON GOODS Northern and Leonard Leonard (1977) identify identify comparison goods goods as

CONVENIENCE GOODS

those purchased at irregular intervals, for long-term use, with

Convenience goods are described by Northern and Leonard

suitability, quality, price and style being important factors in

(1977) as those purchased regularly, so that convenience of

their selection. The group is epitomised by fashion and

location, selection and buying are important. The group

footwear, jewellery, and expensive household equipment. The

includes food, newspapers and drinks — products typically sold

reason for the increase in sales when comparison goods retailers

from local corner and parade shops, supermarkets and unit

cluster close together is their attraction to shoppers wanting to

shops, some of which are situated in shopping centres.

compare similar goods before making a purchase. Nelson encapsulated the effects of comparison shopping when he stated

Steventon and Wood (2000) note that convenience shopping is

his law of compatible retailing in 1958:

more important in smaller shopping centres. Whereas only six of the top 200 UK shopping centres are convenience dominated,

"Two compatible businesses located in close proximity

this type of use dominates most schemes outside the top 400.

will show an increase in business volume directly

The relative importance of convenience and comparison

propo pr oportion rtionate ate to the incide incidence nce of of total total custome customer r

shopping in the design and management of tenant mix therefore

interchange between them, inversely proportionate to the

varies according to the size and nature of the shopping centre.

ratio of the business volume of the larger store to that of the smaller store and directly proportionate to the sum of the ratios of purposeful purchasing to total purchasing in each of the two stores." There are many studies of patronage behaviour which draw on psychological psychological and social theories theories of behaviour, behaviour, largely in US and Canadian literature. These confirm the importance of comparison shopping as a motivation for visiting shopping centres and this has long been held to be one of the primary reasons for designing and managing tenant mix (Reidenbach et al 1984). al 1984). The current importance of comparison shopping for shopping centre investors investors returns is demonstrated by the following figures from Steventon and Wood (2000): comparison goods account for 72% of expenditure in the 400 leading UK shopping centres and an even higher rate of 87% of expenditure within the top 18 centres; of the top 100 UK centres, 91 are comparison dominated, i.e. with more than 55% of their sales

ANCHOR TENANTS Analysts of the ways developers and investors let shopping centres, and thereby create the initial tenant mix, agree that the initial critical lettings are to one or more anchor tenants (CALUS 1975; Abratt et al 1985; al 1985; Greenspan 1987; Brown 1993; Bruwer 1997; Kirkup and Rafiq 1994; Roberts and Melvin 1999). The anchor store is always relatively large and sufficiently well regarded, either in terms of quality, price or function, to be a destination in its own right. Other outlets will cluster about it and feed off the shopping traffic it generates. The choice of anchor tenants is therefore vital to the success of the overall tenant mix. The location of anchors within the centre creates pedestrian flows. By careful management, these can maximise sales potential and therefore rental income from the available floorspace, floorspace, attracting shoppers to all areas of the centre.

coming from comparison goods. Hillier Parker (1997) noted a


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MAIN SPACE USERS The choice of anchor tenants determines which Main Space Users (MSUs) can be attracted to the next highest size range of units. These are usually smaller than the anchor store and some may have sufficient appeal to shoppers to be destinations, but

3 What is expected of tenant mix?

many will function only as part of a comparison or convenience cluster. The anchor and its satellite MSUs together determine the attraction of the centre to the many other retailers needed to create the full range of comparison and/or convenience merchandise, which can maximise the appeal of the centre to the shopping catchment.

It is clear from the literature that considerable considerable thought is devoted to the initial letting of shopping centres, building up from costly demographic or psychographic study of the catchment population to the creation of a tenant mix design (Greenspan 1987; Roberts and Melvin 1999). This acts as a basis for approaches approaches by letting agents to a hierarchy of anchor anchor tenants, leisure and service providers, MSUs, lesser tenants, and operators of barrows barrows and kiosks. A study of the tenant mix literature reveals a wide range of benefits that an investorlandlord might expect to gain from this expenditure of effort and resources. These are set out below.

ATTRACTING AND RETAINING SHOPPERS Perhaps the simplest expectation is that a centre should attract as many shoppers as possible. Gravity models emphasise the direct relationship between between shopping centre size and a centre s potential attraction attraction to shoppers. However, However, within the constraints constraints of a centre s size, Abratt et al (1985) al (1985) suggest that the "maximum attractiveness to the population of that specific trading area" depends on creating sufficient diversity in the tenant mix. This must, however, be part of a coherent merchandise mix, described by Abratt et al (1985) al (1985) as "a balanced diversification diversification of shops offering offering a wide range of products and services". services". There are obvious obvious space limitations limitations on centres abilities to offer offer a wide range range of merchandise merchandise,, leading to choices in aspects of tenant mix such as the balance of convenience and comparison goods and the range of price and quality (CALUS 1975). Bellenger et Bellenger et al (1977) al (1977) found that the variety of tenant mix influences shoppers selection of a shopping centre, and Stoltman et al (1991) al (1991) showed that it influences the frequency of shopping trips. The choice of tenant mix should satisfy any unmet demand for goods and services within a centre s catchment area (CALUS 1975). Shoppers surveyed by Reidenbach et al (1984) al (1984) were motivated to shop at centres outside their home retail trade area primarily by perceived perceived inadequacies inadequacies in the assortment of goods goods on offer locally. locally. A centre providing for shortfalls shortfalls in the range of goods in an area can therefore retain local expenditure and capture sales from competing centres.


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DIFFERENTIATING BETWEEN SHOPPING

the centre may involve socialising with family and friends,

CENTRES

browsing to gather information information on possible possible future purchases purchases and

Abratt et al (1985) al (1985) state that tenant mix should create a specific image for the centre, and and position it in relation to competing retail centres. The need to differentiate a centre from its competitors has grown as their numbers have increased (Yap 1996). Because anchor store lettings in a centre determine the feasible overall tenant mix, they are influential in determining the range of merchandise which can be offered to meet the catchment s demand and position the centre in the retail hierarchy. Roberts and Melvin (1999) describe the psychographic psychographic approach approach to merchandise merchandise selection behind the design of tenant mix at Bluewater, opened in 1999 close to London s outer ring road. This resulted resulted in a tenant mix designed to meet comparison shopping demand at the medium to high end of the quality and price range, differentiating the centre from Thurrock Lakeside, another large regional centre nearby. However, the role of anchor stores is even more important than this. Finn and Louviere (1996) found that anchor stores exert a dominant influence influence on shoppers shoppers image of any shopping centre and thereby on centre patronage. Darden and Babin (1994) show that this influence influence is exerted exerted not only by an anchor anchor s functional characteristics, but also by its affective qualities, which together together contribute contribute to its image in shoppers minds. Positioning a shopping centre in the retail hierarchy is therefore largely achieved through anchor store lettings. The overall merchandise provision is dependent on initial anchor store lettings, but choices of tenants as MSUs and for other units contribute to this objective. It has been suggested that the inclusion of a higher proportion of independent traders, rather than the ubiquitous uniformity of the national multiples, can contribute to increased differentiation between centres

relieving boredom, rather than making purchases of goods or services. As Bloch et al (1994) al (1994) comment, shopping centres have "transcended the role of purchase site to become a centre for many possible activities". The tenant mix can increase the amount of spending by addressing these non-shopping activities. Common methods are to provide opportunities for eating and leisure activities. By providing places places to rest and eat, shoppers can be persuaded persuaded to stay longer in the centre, increasing the chance that they will spend. Wakefield and Baker (1998) investigated the relationship between excitement or emotional arousal of shoppers and their patronage behaviour. They found that tenant variety had a strong influence influence on shoppers shoppers levels of excitement, excitement, which are are positively linked linked to their levels of spending, desire to stay at the centre and intention to return in the future. In this study tenant variety measured not only the variety of retail stores, but also food services and entertainment. Court (2000) develops the idea as fun retailing retailing and tracks tracks its implementation over recent recent years years via the inclusion in shopping centres of cinemas and food courts. Bluewater Bluewater s themed leisure leisure villages are a recent recent example, providing break out areas targeted at different different customer groups, including including restaurants, cafes, cinemas, cinemas, cr ches, a children s grotto and exhibition areas. Although the excitement-inducing features of tenant mix were previously associated with non-store food and leisure elements, Court notes that excitement is now expected to be provided by stores themselves, through aspects of their design, ambience and multimedia customer entertainment.

PEDESTRIAN FLOW

(Kirkup and Rafiq 1994). However, a study of five major UK

Lists of tenant mix rules identify the the importance importance not not only of

shopping centres suggests that this effect is not fully utilised by

selecting a balanced variety of tenants, but of locating them

asset managers (French 2000). Oswald (1999) suggests that

carefully within the centre, both in relationship relationship to the centre s

over a centre s life individuality will decrease as local, niche

layout and in relationship to each other (CALUS 1975). Abratt

and start-up retailers fail to survive the rent review process,

et al (1985) al (1985) express the objectives as "creating maximal

being unable to match match the rents paid by multiples. He suggests suggests

pedestrian flow in order order to ensure there is a 100% location for

that rents should be tailored tailored to the tenant s retail use, in order to

all tenants" and "a logical layout of shops", and suggest that

encourage retailer diversity and enliven the mix offered to

developers tend to neglect this aspect of mix. Several authors

shoppers.

note the problems of achieving optimum location plans, due to market weakness and larger retailers demanding specific

CREATING AN EXCITING SHOPPING

locations (Abratt et al 1985; al 1985; Kirkup and Rafiq 1994; Brouwer

EXPERIENCE

1997). The location of anchor tenants and MSUs are critical

Shoppers can be attracted to a shopping centre by many factors. The investor-landlord investor-landlord s objective is for them to purchase goods and services, services, boosting retailers retailers turnover and and the share that that they

decisions, drawing people through the centre from the access points, and avoiding avoiding areas of low pedestrian flow where where few retailers can thrive.

can take as rent. However, However, shoppers shoppers motivations for for visiting


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4 Managing retail tenant mix

tenant mix policy: the investor/developer may engage an asset manager, who in turn may appoint an on-site centre manager, who is the day-to-day point of contact with the retail occupiers. One or more letting agents may also be involved. All three management layers, and potentially others, are involved to a greater or lesser extent in the management of tenant mix.

THE PRESSURE FOR TENANT MIX CHANGE

MONITORING TENANT MIX

Retail formats are continually changing and, with the growth of

The prerequisite for successful management of retail tenant mix

retailing via the internet and interactive television, television, can be

in any centre is to monitor its performance - that is, the level of

expected to do so at an accelerating rate. Greenspan (1987)

profit achieved by its retailers retailers and the implications for the

stresses that a successful tenant mix needs to respond to such

centre s rental income and capital capital value. Greenspan (1987) (1987)

changes, requiring "continuous monitoring, evaluation and

advocated the constant monitoring of sales performance,

action on the part of the manager". Kirkup and Rafiq (1994)

competition and demographics for this purpose. She suggested

suggest three reasons for the increased difficulty in maintaining

continual manager-tenant communication to allow managers to

a successful tenant mix:

understan understand d tenants tenants business business needs. needs. In the USA the use of

¥

turnover rents informs and facilitates this dialogue, but in the

¥

¥

heightened comp heightened competitio etition n between between centr centres, es, arising arising from their proliferation prolife ration and and consumer consumerss great greater er mobility mobility,, has created pressures for differentiation between centres by means of tenant mix a difficult difficult retail retail market market,, such as that that suffered suffered in the UK in the the early 1990s and again in middle-market fashion in 1999/2000, will result result in falls in retailers space needs and a reduction reduc tion in landlords landlords flexib flexibility ility in managing managing tenant mix ever-changing ever-cha nging demo demograph graphics, ics, fashion fashion and consu consumer mer demand demand,, which lead to the decline of some older retailers and the brisk expansion of new ones, often with different space requirements

UK the usual market rent practice is a barrier to such necessary communication. With the exception of Greenspan (1987), who describes demographic monitoring, the literature says little about the methods and practice of monitoring retail tenant mix evolution, diagnosing problems and spotting opportunities. The most obvious indicator of the need for tenant mix change is the failure of a retailer. This may result in an unexpected vacancy and a request to assign or sub-let the lease. In a strong retail market the landlord is likely to benefit from re-letting a

MANAGEMENT STRUCTURES STRUCTURES

vacant unit and has no interest in keeping a retailer whose

Peters (1990) suggested that tenant mix can evolve

business is not thriving. In a weak market, market, however, however, the

organically through the operation operation of market forces; forces;

landlord may protect its income stream by enforcing the

unsuccessful retailers leave and are replaced by others.

retailer s covenant to pay pay rent until the end end of the lease.

Alternatively, the mix can be planned and actively managed. Whereas most commentators assume the centre asset manager

Tenant mix normally changes incrementally over the life of a

is responsible for this process, Peters believes that:

centre (Thomson 1999) in response to vacancies on liquidation, at lease termination, by agreement with the landlord or by

"...notwithstanding "...notwithstan ding the centre manager manager s

assignment. Each vacancy presents an opportunity for the

responsibilities...it respo nsibilities...it is the ultimate responsibility responsibility of the

landlord to modify the tenant mix within the constraints of the

retailers in a centre to govern retailer mix. Indeed they

market and the characteristics of the vacant unit (Kirkup and

are probably the only body...who are fitted to do so."

Rafiq 1994).

He suggests that tenant associations are well placed to drive

PROACTIVE MANAGEMENT

tenant mix change, but appears to be alone in this view.

Greenspan (1987) advocates proactive management of tenant mix, rather than relying on changes instigated by retailers. This

Prendergast et al (1996) al (1996) investigated tenant-manager

can involve negotiations for surrender of leases, possibly

relationships in New Zealand and found, from a sample of 15

involving a payment to the retailer. More radically a centre may

shopping centres, that all the centre managers were located on

be wholly or partially refurbished refurbished and the tenant mix

site or close by. Kirkup and Rafiq (1999) found more complex

repositioned towards a changed demographic or competitive

management structures operating for UK shopping centres. The

environment.

UK model has up to three layers of management involved in


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This may also involve the merger or subdivision of units to meet the new retail requirements (Knight Frank 1997). Lettings will normally be at market rents, but Greenspan (1987), Yap (1996) and Bernard (2000) all note instances of higher offers being forgone forgone in order to achieve the desired desired tenant mix. Greenspan (1987) advocates the gradual evolution of tenant mix, since shoppers are unsettled by instability or failure to find the retailer they expect within a particular centre. Although Bruwer (1997) suggests shopper surveys for designing initial tenant mix, he is alone in doing so. This may be because of suspicions that stated shopping intentions might not be matched by actual shopping shopping behaviour. behaviour. There are no suggestions suggestions in the

reasonably withheld. Under the Landl the Landlord ord and and Tenan Tenantt Act 1988,, the landlord was required to show that it had acted 1988 reasonably in refusing consent to assign, in order to prevent the computer game shop from taking the unit with detrimental consequences for the tenant mix. Carvalho and Slessenger (1999) suggest that landlords should make known any tenant mix policy to facilitate using it as grounds for refusal of consent to an assignment. They are not explicit about whether the policy needs to be written, but suggest it needs to be enforced consistently.

LEASE LENGTH AND SECURITY

literature that shopper surveys should be used as a means of

During the 1980s UK institutional investors favoured the

monitoring tenant mix success or identifying the need for

income security provided by 20 or 25 year leases to strong

change.

companies. In the context of shopping centres, this meant letting to strong anchors or national multiple retail companies.

LEASE MANAGEMENT CASE LAW Landlords and their agents have evolved management tools to deal with these circumstances. UK retail leases commonly include clauses requiring requiring the landlord s approval before the lease can be assigned or sub-let and a user clause restricting the types of merchandise that can be sold. These These tenant s covenants are the landlord s main means of controlling which retailers retailers trade in the centre and the mix of merchandise on offer. Carvalho and Slessenger (1999) describe three cases in which landlord s tenant mix policies were implemented implemented by means means of lease clauses: ¥

¥

¥

In Chelsfield MH Investments Ltd v British Gas plc [1995] NPC 169 169 a gas showroom was prevented from being used to sell electrical appliances. The lease in this case contained a clause that allowed change of use, but not "for such purposes as the landlord may reasonably object to on the grounds of good estate management". The landlord used the clause to prevent prev ent competiti competition on with an an electricity electricity showro showroom om opposite. opposite. The landlo landlord rd of much of Regent Regent Street in London London refus refused ed consent for a jeweller to assign its lease to a bureau de change and ticket agency on the grounds of its estate management strategy. strategy. The decision was upheld by the Court (Crown Estate Commissioners v Signet Group plc [1996] 2 EGLR 200 200). Perhapss the most Perhap most signif significa icant nt of the the three three cases cases is Moss is Moss Bros Bros.. Group plc v CSC Properties Ltd [1999] EGLR 47 . The lease held by Moss Bros. allowed the sale of clothing or other items approved by the landlord where, where, in the landlord s reasonable opinion, their sale was "consistent with the principles princ iples of of good estate estate manag managemen ementt having having regard regard to the particular parti cular distrib distribution ution of of trades trades within the the centre". centre". The The landlord refused consent for an assignment to a computer games retailer and the change of use involved, since its policy polic y was to conce concentrat ntratee fashion fashion retailers retailers in that that part part of the centre. The Court decided that there was a tenant mix policy in force, albeit unwritten, and the consent for assignment was


In England and Wales, the Landlor the Landlord d and Tenant Tenant Act 1954 gives retailers security of tenure at lease expiry, should they choose to remain. As a result, the only opportunities for a landlord to modify tenant mix would be when a retailer failed, or sought to surrender the lease, or by the expensive alternative of buying it out. However, Section 38(4) of the Landlord Landlord and Tenant Tenant Act 1954 gives the landlord and tenant the opportunity to agree to opt out of the Act s provisions for security of tenure. tenure. This allows landlords to increase their control over occupation and thereby the frequency with which tenant mix changes. During the property recession of the 1990s and the ensuing change in office business practices, shorter leases became acceptable to investors in the office and industrial property sectors. The idea was also accepted that accelerating functional obsolescence was more easily remedied where landlords used shorter leases, enabling them to regain control of the building more frequently. Retailers, however, require at least five years security over which to write off the sometimes very substantial costs of fitting out their unit, so that acceptable lease lengths are longer. There is always a balance to be struck between the flexibility that can be provided by short leases, opted out of the 1954 Act, and the desire for an income stream secured well into the future, underpinning the value of the centre as a financial asset.

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returned, all with useful responses. Figure 1 provides a breakdown breakdown by overall floorspace floorspace of the centres for which responses were received. Appendix B contains a list of the

Research methodology

centres. The sizes range from 22,480 to 148,650 square metres (242,000

The literature review on tenant mix and its management gave rise to a list of preliminary questions to be addressed by the research. In the first instance it was necessary to test these ideas against the practical and expert knowledge of specialists in the field. The primary research therefore commenced with interviews with 15 letting agents and retail asset managers, both in-house and external (see Appendix A). The interviewees were provided in advance advance with a list of initial questions. The semistructured interviews followed this agenda but interviewees were encouraged to raise additional issues, which they did. The interview responses prompted the questions included in the subsequent questionnaire, which focused the research on the ongoing management of tenant mix —‘ an issue sparsely dealt with in the literature. A postal survey was chosen chosen as the most practical means means of data collection within the time constraints. constraints. The survey was sent in June 2000 to investors and asset managers of 104 UK shopping centres over 25,000 square metres in size. In many cases the centres were managed inhouse, so that there was no distinction between the two groups of respondents. The investors included both institutions and property companies. companies. They were were asked to respond only in respect of the named centre. Thirty questionnaires were

to 1.6 million square feet), with a median of 32,980 square metres (355,000 square feet). In order to explore possible differences between responses from larger and smaller shopping centres, the sample has been split at the median value. This division is arbitrary, rather than being based on any known functional divide between size groups, but does provide some interesting results. The results of the questionnaire survey were reported to a workshop held at the British Council of Shopping Centres (BCSC) National Conference, Glasgow, in November 2000. Workshop participants were then asked to discuss the issues raised and report their deliberations. The outcomes are reported below. below. This group of retail specialists was was self-selected rather than representative, and may have been individuals with a particular interest interest in developing tenant tenant mix management practice. The group group of 40 people included included solicitors, retailers and retail architects, as well as the majority group of retail asset managers. Finally, a copy of the draft report was sent to each interviewee and questionnaire respondent with an invitation to add further comments. These comments were then incorporated into the final report.

200,000

s e r 150,000 t e m e r a u 100,000 q S 50,000

0 Figure 1: 1: Floorspace of respondent shopping centres


6

since it is the underlying driver of successful tenant mix, giving rise to ideal competitive positioning and maximising rental income.

Research results It is interesting that respondents rate responding to consumer consumer demand less highly highly than respondin responding g to occupie occupierr demand demand , with only half the number considering the former to be critical.

The results of the questionnaire survey are reported here, supplemented supplemented by the interviewees interviewees observations and the BCSC workshop reports. Questionnaire respondents were invited to comment on the issues raised and their comments are reported where they add substance to the bare statistics.

Occupier demand impinges very directly on managers, as retailers contact them or their agents, seeking new trading locations. Consumer demand, on the other hand, is not obvious and can only be ascertained through research. It may be that shopping centre managers rely on the detailed demand and supply research carried out by individual retailers in

EVOLVING TENANT MIX

ascertaining the viability of new store locations, rather than

Respondents were asked to distinguish between the importance

themselves analysing the unsatisfied consumer demand in their

of seven considerations that interviewees had identified as

centre s catchment area. This This is essentially a passive rather than

relevant to managing the ongoing ongoing evolution of a centre s mix.

an active approach to managing tenant mix, and relies on the

Figure 2 shows the responses, and highlights the primacy of

retailers expertise, despite despite the fact that they they may have an

maintaining effective anchors. This is in accordance with the

imperfect understanding of the tenant mix as a whole.

roles attributed to anchor stores in the literature — positioning the centre in relation to its competition, dominating dominating shoppers

Two BCSC workshop groups suggested that landlords should

images of the centre and determining which other retailers can

analyse catchment data and pay more attention to demographic

be recruited and retained retained there.

changes, in order to tailor tenant mix to consumer demand. They envisaged this information being shared with retailers to

Five other considerations are rated as critical or important by a

ensure that all involved were making decisions based on the

large majority of of respondents. Of these, these, maximising rental rental

best possible information. information. However, However, there were reservations reservations

value and respondin responding g to current current occup occupier ier deman demand d are rated

about the ability of asset managers to interpret such data

only marginally higher in score than positioning positioni ng against other

without employing retail experts. The benefits of this approach

centres centres , choosing choosing strong tenant tenant covena covenants nts and meeting meeting

had also to be balanced against its cost, although some might be

unmet consumer consumer demand in the catchment area . Theoretically

recoverable recoverable from retail tenants.

this last consideration should be the most important of the five,

Reflecting local stores and streets

Smaller centres

Strong tenant covenants

Larger centres

Meeting unmet demand

All centres

Positioning against other centres

Maximising rental values

Current occupier demand

Maintaining effective anchors

0

0.5

1.0

1.5

2.0

2.5

3.0

Average score (0=not applicable 3=critical)

Figure 2: 2: When managing the evolving tenant mix in this shopping centre, what are the most important considerations?


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The fact that responding to occupier and unmet consumer

LOCATION OF STORES

demand is scored comparably to maximising rentals suggests

As well as the overall balance of retail types within a centre,

that short-term value maximisation is not widespread. This

the second major ingredient of tenant mix is locating each

concurs with comments by Greenspan (1987), Yap (1996) and

retailer in relation to others and and to the centre s layout.

Bernerd (1999) and was reinforced by some interviewees, who

Respondents were asked to score issues involved in these

suggested that shareholder pressure for short-term increases in

micro-location decisions. Figure 3 shows the responses to the

value had to be balanced against medium to long-term rental

eight suggested issues, drawn from the literature and the

growth potential arising from a well-chosen tenant mix.

interviews.

However, BCSC workshop groups felt that pressure for shortterm rental growth associated with IPD benchmarking meant

Over 80% of respondents rated management of pedestrian

that very few risks were taken in leasing and overall

flows as either critical or important, prioritising it over other

performance performance could be damaged. damaged. They suggested suggested that freedom

seemingly important issues. The lower scores given to grouping

from short-term investment return benchmarking would lead to

comparison shops, separating incompatible retailers, and

more imaginative tenant mix and hence performance in the longer term — more independent retailers could be included who could afford to locate in shopping centres only if allowed

separating competing stores, seem at first sight to contradict the importance afforded to these issues in the tenant mix literature. However, this may be because managers rely on the judgement

concessionary rents.

of skilful retailers to select or reject individual locations on these bases and therefore concentrate concentrate on the whole centre

The low score given given to reflecting local stores and streets suggests that managers of in-town centres are more interested in competing with other centres than with the surrounding retail

issues, which are outside the control of individual retailers and for which the manager alone is responsible. Certainly the attribution of the second second highest score to good access to

context. There was no difference between the weight given to

catering catering is in accordanc accordancee with with this this whole whole centre centre approac approach. h. It

this issue by managers of large and small centres, despite the

is also likely that floorspace pricing automatically automatically sorts

fact that more small centres are embedded in town centre retail

retailers, rendering the issue of distinguishing primary from

contexts.

secondary malls relatively unimportant. The low importance afforded to creating malls for different shopper profiles

Figure 2 shows the differences in response to this question

suggests that this is a luxury outside the objectives of any but

between larger larger and smaller centres. Only positioning against against

the largest centres; 22% of respondents considered it did not

other centres differs noticeably noticeably,, being more highly rated rated for

apply to their centre at all.

larger centres, perhaps because they compete over large geographical areas.

The relatively highly perceived importance of separating incompatible incompatible retailers compares surprisingly surprisingly to the issue of grouping comparison retailers, which receives much attention in the literature and yet is given relatively low importance here.

Critical

Separate competing stores Malls for different shopper profiles

Important

Group comparison retailers

Minor

Mall merchandise profiles Not applicable Distinguish primary from secondary Separate incompatible retailers Good access to catering Manage pedestrian flows

0

20

40

60

80

100

Percentage of shopping centres Figure 3: 3: When deciding where to locate each retailer within the shopping centre, what are the most important considerations?


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This analysis brings to mind the case Moss case Moss Bros. Bros. Group plc v

Interviewees varied in their responses to the case of Moss of Moss Bros. Bros.

CSC Properties Ltd [1999] EGCS 47 and others, where

Group plc v CSC Properties Ltd [1999] EGCS 47 . 47 . One

landlords had to defend their comparison retailing cores against

interviewee had subsequently been asked to produce written

unwanted interlopers seeking to feed off the high footfalls

policies for the tenant mix of several several shopping centres, centres, to

generated there. The explanation of this apparent anomaly

protect against against unwanted assignments. assignments. These policies policies used

might then be that comparison retailers recognise their own

loosely defined retail categories to avoid a restriction on

kind, relieving managers of having to steer them to the

assignment depressing rental value. Some interviewees had not

appropriate location. Other non-comparison retailers seeking to

recorded a tenant mix policy to facilitate a defence against

locate amongst them have to be positively managed into

unwanted assignments.

locations that will enable them to thrive without damaging the effectiveness of the centre as a whole.

Respondents were therefore asked whether the tenant mix policy for their centre was formal formal or informal, written or

POLICIES FOR MANAGING TENANT MIX

unwritten and detailed or outline. Figure 4 shows the responses. responses. If informal/outline/unwritten informal/outline/unwritten policies are

Kirkup and Rafiq (1999) remarked on the variety of

characterised as being less developed and

management structures operating in UK shopping centres. A question aimed at identifying whereabouts in the ownership and

formal/detailed/written policies are characterised as being more developed, then it is clear that less-developed policies dominate

management hierarchy the responsibility for tenant mix policy

the sample. Only 40% of centres have a written policy and

lies could have been better designed. Little more can be

fewer than 30% have a formal one. This would suggest that

inferred from the answers than that there is a hierarchy of influence. On average, in-house asset managers and investors in

some centre mixes may be vulnerable to disruption by assignment, or that investors may unnecessarily have to go to

this sample have more influence than do outsourced asset

some lengths to defend their mix.

managers, letting agents and research consultants. Shopping centre managers have marginally less influence than research consultants, and principal retailers and anchor tenants are equal

Figure 4 suggests that less-developed policies are more prevalent in smaller smaller centres. Applying Applying a chi-squared chi-squared test to the

lowest in the hierarchy. These results are unsurprising, except the equal scores of principal retailers and anchor tenants, where

responses shows that the difference between the large and small centres is statistically significant at the 5% level. This

the latter might have been expected to wield more influence.

means that larger centres are more likely to have a well-

This may be a result of the current weakening of traditional

developed tenant mix policy, with the possible implication that

anchors such as Marks and Spencer plc, and the growing

smaller centres centres mixes are more likely to be vulnerable vulnerable to

influence of the main space users. This reinforces the conventional wisdom, rather than the idea forwarded by Peters

disruption by assignment.

(1990) that retailers should lead tenant mix management.

Smaller centres

Detailed

Larger centres

Formal

Written

Unwritten

Outline

Informal

0

2

4

6

8

10

12

14

16

Number of shopping centres Figure 4: 4: Please describe the status of the tenant mix policy


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Asset managers at the BCSC workshop considered articulating

These results must be considered in the light of the finding that

and communicating tenant mix policy as largely unimportant,

a fifth of respondents were unaware of the Moss Bros. case, as

and some believed it could limit flexibility, creating a millstone

shown in Figure 5. Figure 6 shows that only 25% of the sample

for managers. Differences in approach between small local

had increased the formality of their policy following the case.

centres and large regional or super-regional centres were highlighted by one group who considered sophisticated policy appropriate for the latter but unnecessary for the former. This ties in with the picture of policy development revealed by the sample. Workshop feedback echoed Kirkup and Rafiq (1993) and Peters (1990), who documented the difficulties of managing tenant mix at times of recession, when there is pressure to accept almost any tenant which will pay rent for a hitherto vacant unit. In such circumstances policy was considered almost superfluous. Interestingly, the only group in favour of asset managers communicating a tenant mix policy included several retailers.

MONITORING TENANT MIX EFFECTIVENESS Figure 7 shows the sample s responses to a question about frequency of review of tenant mix policy. Regular policy review occurs in only 47% of the sample, 18% quarterly and 29% annually. Thirty-two per cent of the sample reviewed their policy at unspecified unspecified irregular intervals and and 21% relied on lettings as the occasion for review. Overall, if regular policy reviews are taken as an indicator of a proactive approach to the issue, this suggests that 53% of managers are reactive. According to Greenspan (1987), tenant mix should be continuously monitored, to diagnose problems and trigger a proactive management management response, response, ensuring that centre centre competitiveness is maintained. In reality, continuous monitoring

No - 20%

may not be practical, but monitoring must be both regular and

Yes - 80%

frequent. Interviewees described a continual informal process of conversations between the on-site centre manager and retail unit managers, to gather information, including their sales trends. This is relayed to the asset manager and so contributes to the

Figure 5: 5: Are you familiar with the decision in the case Moss Bros v. CSC Properties?

No - 75% Yes - 25%

process of monitoring monitoring tenant mix effectiveness. effectiveness. In some cases these meetings were carried out to a regular programme. In addition to this informal information gathering, interviews and the literature suggested four formal methods of monitoring the effectiveness effectiveness of a centre s tenant mix policy and these were used as a basis for asking respondents about the approach in their centres. Figure 8 shows the outcomes. To ensure effectiveness, any method should be used regularly, whether it is annually, quarterly or monthly. Among the four

Figure 6: 6: Has the centre’s tenant mix policy become more formal following the Moss Bros case?

methods, regular use is equal lowest for bespoke research and turnover details, usually collected for calculating turnover rents.

Annually

27%

23%

Less than half the sample regularly used these methods. Of the centres using turnover details, about half do so annually, with

Irregular intervals

only three centres following Greenspan Greenspan s advice (1987) to

Quarterly

monitor turnover weekly or monthly. It should be noted that

Each letting

turnover rents are normal in US centres, but infrequently used

20%

in the UK, so that these details are probably unavailable to

30%

many of the respondent asset managers. This may explain why nearly half of the sample never used turnover details. Figure 7: 7: How frequently is this shopping centre’s tenant mix policy reviewed?


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Interviewees described setting turnover rents for only a

Two respondents ruled out shopper surveys altogether, and eight

proportion, proportion, for instance 5%, of leases, with market rents for the

carried them out only infrequently. The other two-thirds of the

others. These are often leases to independent retailers, the

sample carried them out predominantly annually or quarterly.

performance performance of which is difficult to predict and which which are

Other bespoke research was carried out in all but four of the

unable to bid competitively against multiples. In these

sample, but only infrequently in half of these cases. Elsewhere

circumstances turnover rents are a practical form of rent

it occurred predominantly on an annual basis.

concession and monitoring them gives the manager warning of failure. However, in centres where turnover rents are only used

Six centres reported monitoring habits which certainly do not

for independents, they are an inadequate tool for monitoring

match up to the standard of frequency advocated in the US

tenant mix unless supplemented by other methods. Several

context by Greenspan (1987). They used a single method only

centres also use a turnover index, presumably thereby achieving

at annual frequency or one or two surveys, annually at best. On

coverage of of all retailers performance. performance. This is indeed indeed the most most

the other hand, the remaining 80% of the sample, with two or

frequently used method, with almost half the sample using it at

more methods used at more than annual frequency, would

least every month and nearly two-thirds using it annually or

appear to have a good chance of noting the need for tenant mix

more often.

change.

Several interviewees said that retailers are unwilling to reveal

It seems anomalous that only 47% of the sample reviewed their

details of their turnover, for fear this highly confidential

tenant mix policy on a regular basis, whereas 80% regularly

information may leak to competitors. Turnover indexation is a

collected the data that might indicate a need for policy to

more acceptable acceptable alternative, alternative, based on retailers retailers reports to the

change. This suggests that the data collection does not

asset manager of turnover variations over time, expressed as

automatically initiate a review of policy, but that review often

percentage percentage changes. Figure 8 shows shows that this method of

arises from other stimuli, such as a letting or tenant failure.

monitoring retailers retailers performance was used by about two-thirds two-thirds

IMPLEMENTING TENANT MIX POLICY

of the sample, with almost 50% of managers operating the system at frequencies of between one and four weeks. One interviewee reported that the average result of the exercise was relayed back to tenants to enable them to benchmark their performance performance against the others in the centre. centre. This system was advocated by several of the BCSC workshop groups as the ideal practice to aim for. for. However, However, some expressed doubts doubts that asset managers had sufficient retailing expertise to utilise fully the potential of turnover turnover data.

Interviews yielded ten major means of implementing tenant mix policies. Respondents Respondents were asked to identify identify how frequently they used each one, the results being shown in Figure 9. The results show user and alienation clauses to be the principal tools of implementation. However, the literature would suggest that scores should be as high as four for each one.

Never Turnover details Infrequently

Annually

Bespoke research

Quarterly Shopper surveys

Monthly

Turnover index

0

5

10

15

20

25

30

Number of shopping centres Figure 8: 8: What methods are used in this centre to monitor the effectiveness of tenant mix policy?


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Extend the centre

Smaller centres

Concessionary rents Larger centres Leases of 10 years or less Surrenders without premium

All centres

Landlord’s break clauses Move tenants Buy out tenants Amalgamate units Use clauses Alienation clauses

0

1

2

3

Average scores (never=0, always=4)

Figure 9: 9: How often are the following means used to implement the tenant mix policy in this centre?

Smaller centres Poorly Larger centres Partially All centres

Fairly

Well

Completely

0

4

8

12

Number of shopping centres Figure 10: 10: To what extent has this centre’s tenant mix been able to keep up to date with modern retail trends?

Nonetheless, Nonetheless, this suggests that attention should should be paid to Moss

since their exit would be disastrous to the centre s success. The

Bros. Group Group plc v CSC Properties Properties Ltd [1999] EGCS 47 . Some

relatively high frequency of amalgamating units, buying out

interviewees used pre-emption in alienation clauses, to regain

tenants leases, moving moving them within within the centre centre and including including a

control of units where retailers wanted to leave.

landlord s break clause in the leases, suggests suggests a proactive approach by landlords. Nearly all interviewees regarded buying

Interviewees agreed that lease lengths were typically fifteen

out tenants as the most proactive response to diagnosis of tenant

years, and that retailers resist leases any shorter than five years,

mix problems, and the natural outcome of monitoring the mix.

to enable them to write off fitting-out costs fully. Other

Buyouts could be to replace a failing tenant, to introduce an

interviewees let some units on five-, six- or ten-year terms,

important destination retailer, and often to amalgamate units to

especially those taken by independent retailers and caterers with

provide the larger larger unit sizes increasingly required required by such

less secure covenants and which do not have a proven track

retailers (Knight Frank 1998).

record of successful business. In England and Wales these were also contracted out of security of tenure, to give the landlord flexibility to remove them at lease expiry. However, one managing agent at interview suggested that 99% of shopping centre leases in England and Wales are within the Landlord Landlord and Tenant Act 1954. 1954 . Anchor stores are locked in for longer periods


TENANT MIX OBSOLESCENCE OBSOLESCENCE When asked whether their centre s tenant mix had kept up to date with modern retail trends, only 46% were sufficiently confident to answer that it had done so well (34%) or completely (12%). The answers are illustrated in Figure 10.

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Smaller centres Lack of proactive management

Larger centres Lack of investment All centres Lack of retailer demand

Long leases

Lack of vacant units

Inappropriate unit sizes

0

0.5

1.0

1.5

2.0

2.5

Average score (not applicable=0, critical=3) Figure 11: 11: What factors, if any, have hindered updating the tenant mix in this centre?

Interviewees thought that the pace of retail change had

respondent mentioned splitting units, whereas interviewees

accelerated in recent years. They cited as examples the end to

agreed that units in older centres are often too small to meet

expansion programmes by some anchor stores, the weakened

current demand from fashion retailers, as described by Knight

appeal of middle-market fashion provided by national multiples,

Frank (1998). Respondents scored lack of vacant units and long

and the growing importance of destination fashion retailers

leases equally, as second in importance. The scores attributed to

requiring larger units of 1,000-2,000 square metres. Eighty-two

these two causes support the intuitive interpretation, that there

per cent of respondents respondents considered considered that the current decline in

are infrequent opportunities for changing the mix when units

the mid-range fashion fashion market had affected their centre s tenant

have been let on long leases. Modern leasing practice, described

mix policy, with 11% seeing major changes. The answers

by interviewees, interviewees, may in time alleviate this problem.

shown in Figure 10 appear to recognise that managing tenant mix is challenging in such a context. Overall, less than 50% of

Lack of retailer demand is likely to be a problem in failing

respondents thought they had kept up with change well or

centres, whereas lack of vacant units could be seen as a happier

completely.

difficulty, enjoyed in successful centres where demand is high. It is arguable that lack of appropriately sized units, and of

Managers of larger centres in the sample are almost twice as

vacant units, could be ameliorated in thriving centres by a

likely as managers of smaller centres to be confident that they

combination of proactive management and investment, buying

have updated their tenant mix to keep up with retail trends.

out tenants on long leases to amalgamate units and meet current

Similarly, managers of smaller centres are almost twice as

retailer demand. This solution would only be successful, as

likely as managers of larger ones to believe that their centres

interviewees pointed out, if the short-term cost were justified by

have only partially succeeded in keeping up with retail change.

the contribution to overall footfall, and eventually rental values,

However, a chi-squared test shows that these differences are not

of introducing an appropriate destination fashion retailer or

statistically significant significant at the 5% level.

other main space user.

Six factors hindering tenant mix updating were identified from

The unanimity between managers of larger and smaller centres

interviews and the literature. Respondents were asked to score

on these factors is perhaps surprising. The only noticeable

them, the results being shown in Figure 11. Few respondents

difference is in their attitudes to the need for more proactive

believed that lack of investment investment and of proactive proactive management management

management. However, neither group thought this a significant

had hindered tenant mix updating. The perceived inability to

reason for their tenant mix being less than up to date, and it is a

update tenant mix, illustrated in Figure 10, was attributed to

tribute to the self-awareness of some managers that they are

other causes. Inappropriate unit sizes were identified as most

prepared to admit to it at all.

influential, ranked on average as important. Only one


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Respondents were asked finally whether they thought the centre s tenant mix would need to change change in response to the growth in e-retailing. 30% foresaw no need for change, 70% considered it should be only minor and none expected major change. Several qualified their responses by limiting them to

7 Summary and conclusions

the short-term, reserving judgement over a longer time frame. Comments indicated that some retail sectors were believed to be more vulnerable vulnerable than others, notably books books and CDs.

SUMMARY The success of any new shopping centre depends on the initial tenant mix, which is dominated by the choice of anchor tenants. The positioning of the centre in relation to its competition, its attraction to shoppers and its potential for drawing repeat patronage are all strongly strongly influenced by the tenant tenant mix. Retailing in the UK is undergoing significant changes, which are a challenge to retail asset managers and have the potential to render obsolete the tenant mix in many centres. Eighty per cent of respondents thought their tenant mix policy had been affected by the decline in the mid-range mid-range fashion market. The research shows that many participants in the centre management hierarchy are involved in meeting this challenge, but that in 20% of the sample there was doubt doubt that they had succeeded fully. In a majority of cases the policy was informal, undetailed and unwritten, despite the need, highlighted in Moss Bros. Group Group plc v CSC Properties Properties Ltd [1999] EGCS 47 , to establish a policy as a defence against possible assignments. It is interesting that the asset managers felt able to assess the success of their tenant mix policy, despite its nebulous nature; that nearly 20% were unaware of the Moss Bros. case; and that only 25% had since increased the formality of the policy. The importance of maintaining anchor stores is recognised by asset managers, as it is in the literature. Short-term income maximisation appears to be balanced against the need to plan a tenant mix which will add to asset value in the medium to long term. Management of pedestrian flows is perceived as the main objective when locating retailers in a centre, and considerations relating to comparison clusters, lifestyle and merchandise appear to be seen as less important, perhaps because these are perceived to be automatically automatically managed by the retailers choices of affordable and suitable pitch. Turnover indices and shopper surveys are the main methods used to monitor the success of tenant mix policy. In a small minority of cases monitoring appears to be both irregular and infrequent, but 80% of the sample appear to have a good chance of noting the need for tenant mix change with two or more methods used at more than annual frequency.


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Policy review appears to be more irregular and often depends

To avoid creeping tenant mix obsolescence, management needs

on stimuli such as tenant change. Despite the suggestion that

to become more proactive, responsive and flexible. To achieve

some asset managers could be more proactive, the incidence of

this, centres should have:

tenant buyouts, amalgamation of units, moving tenants and

¥

an ongoin ongoing g program programme me of of monitor monitoring ing key sour sources ces of of information

¥

an explic explicit it direction direction,, though though subject subject to review review,, based based on thorough research

¥

a marketin marketing g strategy strategy with prior priority ity target targetss and a clear clear message message

¥

a greater greater willing willingness ness to risk risk investme investment nt tactical tactically ly to achie achieve ve higher returns

¥

a consci consciou ouss program programme me of annua annuall improve improvemen mentt

operating landlords break clauses clauses suggests suggests that many many are energetically adjusting their tenant mix to respond to changing retail circumstances. The main hindrances are perceived to be inappropriate unit sizes, lack of vacant units and long leases. Lack of investment and of proactive management are not considered to be a problem, although arguably a combination of investment and proactive management could overcome the problems that were identified. identified.

Shopping centre management needs to evolve away from the It is not possible to ascertain from this type of study the degree to which asset managers are succeeding in managing tenant mix in a period of rapid and significant change in retailing. The

negative battle of landlord versus tenant, towards more modern and positive forms of partnership. Initiatives to achieve this could include:

study does, however, provide an overview of the objectives and methods of tenant mix management that asset managers can use in assessing their own effectiveness. effectiveness. A larger sample might have provided opportunities opportunities for better differentiating differentiating practice practice

¥

more open openness ness betwe between en the the parties, parties, based on shared shared goals

¥

poolin poo ling g of rese researc arch h on the the catc catchme hment nt area area

¥

more fre more frequ quen entt optin opting g out out of the the Land Landlor lord d and Tenan Tenantt Act 1954 (England and Wales)

¥

shor sh orte terr leas leasee leng length thss

¥

more mo re us usee of of tur turno nove verr rent rentss

¥

an unders understand tanding ing that that unde underperf rperformin orming g retailer retailerss will will be assisted, but must leave if they cannot improve

between different different types of centres, which which was suggested by interviewees. Resource-consuming methods may not be considered a worthwhile investment when the potential for increasing value is limited by size and catchment.

THE FUTURE DIRECTION OF TENANT MIX MANAGEMENT Tenant mix determines the success of centres as shopping destinations, so tenant mix management is fundamentally important to shopping centres. The traditional property asset

FUTURE RESEARCH In order to move towards this vision of shopping centre management with its potential for tenant mix improvement, research is needed into the feasibility of the following areas:

approach to shopping centres tends to be remote from the customers who are are the centre s lifeblood. It is also too

¥

A larg largee amount amount of data data is collecte collected d and and relied relied on by retaile retailers rs and centre asset managers. How can this be assembled and managed collectively, collectively, cutting out duplication and contributing to a shared understanding of the trading context of a centre, in order to facilitate continual tenant mix updating?

¥

What cons constitute titutess a market marketing ing strateg strategy y for a shoppin shopping g centre centre and its tenants? How should such a strategy be formulated and implemented?

¥

How can centre centress make make the the transition transition from a tradition traditional al long long lease/security of tenure pattern of lettings, to a more flexible and responsive business approach, which could provide the context for evolving an optimum merchandise mix?

conservative. Shopping centres would be more effectively managed as retail businesses, businesses, based on the marketing concept concept of business. To To achieve this, centres need to be more in touch with: ¥

natio na tiona nall con consu sume merr tren trends ds

¥

natio na tiona nall ret retai aile lerr tre trend ndss

¥

consum con sumers ers and and trend trendss in the the catchm catchment ent area area

¥

shop sh oppe pers rs vis visit itin ing g the the cent centre re

¥

tena te nant ntss in in the the ce cent ntre re


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A p p e n d ix A

A p p e n d ix B

LIST OF INTERVIEWEES

SHOPPING CENTRES THAT RESPONDED TO THE SURVEY

Jenefer Greenwood

CB Hillier Parker

Graham Chase

Chase and Partners

Arndale Centre, Eastbourne

Kay Chaldecott

Capital Shopping Centres

Arndale Centre, Wandsworth, London

Jerry Winter

Churston Heard

Blackburn Centre, Blackburn

Mark Williams

DTZ Debenham Tie Leung

Bluewater, Dartford

Sarah-Jane Curtis

Grosvenor Estate

Brent Cross, London

John Strachan

Healey and Baker

Broadmarsh Centre, Nottingham

Yvonne Court

Healey and Baker

Buchanan Galleries, Glasgow

Justin Taylor

Healey and Baker

Buttermarket, Ipswich

Keith Redshaw

Land Securities

Castle Mall, Norwich

Ian Pearson

Lamb and Edge

Churchill Square, Brighton

Paul Cawood

Lambert Smith Hampton

Cleveland Centre, Middlesbrough

Keith Stone

Lendlease

Eastgate Centre, Gloucester

Rob Wingrave

Lunson Mitchenall

Ellesmere Centre, Manchester

Gordon Gabbani

MEPC

Elmsleigh Centre, Elmsleigh

Bob Fletcher

Sanderson Townend & Gilbert

Frenchgate, Doncaster Harvey Centre, Harlow Kirkgate Centre, Bradford Market Place, Bolton Marlowes, Hemel Hempstead Meadowhall, Sheffield One Stop, Perry Bar Priory Meadow, Hastings Spindles, Oldham St Enochs Centre, Glasgow Swan Walk, Horsham Telford Centre, Telford The Fort, Birmingham The Malls, Basingstoke The Walks, Basingstoke Whiteleys, London

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Tenant mix

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