leasing strategy of a shopping centre

Leasing Strategy of a Shopping CentreLeasing Strategy of a Shopping Centre

Date: 29 Jun 2002

Speaker: Ivan Ng, Government Property Agency

JUNIOR ORGANISATION – Pre-Qualification Structured Learning

THE HONG KONG INSTITUTE OF

SURVEYORS

Contents

• Part 1 Types of shopping centre• Part 2 Leasing strategy for a new

shopping centre• Part 3 Tenancy administration • Part 4 Past examination exercise• Part 5 Q & A

PQSL: Leasing Strategy of a Shopping CentrePQSL: Leasing Strategy of a Shopping Centre

Part 1 Part 1 Types of Shopping Types of Shopping CentreCentre


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


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


Part 2 Part 2 Leasing strategy for a Leasing strategy for a new shopping centrenew shopping centre


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


• Tenant mix (by categories)• Anchor tenant - don’t be dominated by Departmen

t store• Chain stores/Unique stores• Entertainment facilities• Location of tenants e.g. foodcourt etc.• In US, large department stores at both ends with s

mall shops along the passageway



• 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 c

ontract out• Marketing and promotion




• 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



• Tenant Mix• by categories• by location• by size• by price



• 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


Middle

Low

Low Middle High

High

Class

Price

Gucci

Swank

D & G

Pacific PlaceCityplaza

Crocodile

Shoppers




• Chain store or theme store• Food and beverage - restaurant or food court• Entertainment - ice rink, cinema, bowling centre• Apparel/cosmetics, F & B???



• 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



• 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



• 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”



• 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.



• 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;



• Valuation of Shop• Comparison method - nearby shops of same categ

ories, 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?


Part 3 Part 3 Tenancy Tenancy AdministrationAdministration


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



• Termination and break clauses

• Rent review- refer to arbitrator or expert witness



• 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



• 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



• 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


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



• Toilets facilities• Telephone ? Where and how many ? Types• ATM machine/bank• Seats• Landscaping• Ambient music• Odour or smell



• Marketing and Promotion• Regular events e.g. fashion show, car exhibition,

lucky draw, seasonal greetings• VIP card to patronage - given respect for frequent

shoppers


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


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.


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



• Information Desk

• Toilets

• Foodcourt location

• Restaurants - types and location

• Chain stores

• Dept Store/Hypermarket as anchor tenant



• Display area

• Booth/kiosk

• Ambience music

• Skylight



• 4 “P”

• Place

• Price

• People

• Promotion



• 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


Thank You!Thank You!


leasing strategy of a shopping centre

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