tenant mix

RESEARCH PAPERS

Managing tenant mix in

shopping centres in the

United Kingdom

Mary Lou Downie, Peter Fisher andCheryl WilliamsonNorthumbria University, Newcastle upon Tyne

September 2002

Volume 4, Number 14

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Peter BrandonUniversity of Salford

Jose Luis Caramelo GomesEscola Superior de ActividadesImobiliarias

Jean CarassusCentre Scientifique et Techniquedu Batiment

David ChapmanUniversity College London

Paul ChynowethUniversity of Salford

Neil CrosbyUniversity of Reading

Mervyn DobbinDe Montfort University

Brian EksteenUniversity of Port Elizabeth

Chris EvesUniversity of Western Sydney

John EyreUniversity of Exeter

Timothy FeltonUniversity of Plymouth

Dominique FischerCurtin University of Technology

Richard GroverOxford Brookes University

Stephen HargitayUniversity of the West ofEngland

Malcolm HollisMalcolm Hollis Consultants

Mike HoxleyAnglia Polytechnic University

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David LewisHarper Adams UniversityCollege

Colin LizieriUniversity of Reading

Jorge LopesInstituto Politecnico deBroganca

John MacFarlaneUniversity of Western Sydney

David MackminSheffield Hallam University

Nick MillardBruton Knowles

John MoohanNottingham Trent University

Bev NuttUniversity College London

Jacob OpadeyiUniversity of the West Indies

Martin PearsonUniversity of Northumbria atNewcastle

Steve PearsonSouth Bank University

Srinath PereraUniversity of Moratuwa

John PerryUniversity of Birmingham

Martin SextonUniversity of Salford

Li ShirongChongqing Jianzhu University

Martin SkitmoreQueensland University ofTechnology

Martin SmithUniversity of Nottingham

Alan SpeddingUniversity of the West ofEngland

Peter SwallowDe Montfort University

Julian SwindellRoyal Agricultural College

Carlos Torres FormosoNORIE/UFRGS

Thomas UherUniversity of New South Wales

Tony WalkerHong Kong University

Ian WatsonUniversity of Salford

www.rics-foundation.org RICS Foundation • 3

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

Mary Lou Downie, Peter Fisher and Cheryl Williamson

Northumbria University, Newcastle upon Tyne, United Kingdom

Abstract

Contact

The variety and location of retailers within a 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 landlord-

investors 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 mix, landlords consider the anchor stores - those large enough and

established enough to be shopper destinations in their own right - to be the most crucial factor.

¥ When deciding upon the location of tenants and shop units within a centre, interview and survey respondents

prioritise whole centre issues such as pedestrian flow over retailer micro-location

¥ In a majority of cases tenant mix policies are informal, despite the need to produce written evidence of such

policies as a defence against undesirable lease assignments by tenants.

¥ Turnover indices and shopper surveys are the main methods used to monitor the success of tenant mix policies.

Monitoring is usually at sufficiently frequent intervals to highlight any changes in circumstances. However,

policy reviews are more irregular and dependent upon stimuli such as tenant change, suggesting that

monitoring is not necessarily used to initiate 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

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Acknowledgements

The British Council of Shopping Centres

The interviewees listed in Appendix A

The respondents listed in Appendix B

Managing tenant mix in shopping centres in the UnitedKingdom

www.rics-foundation.org RICS Foundation •5

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

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

(hereafter occasionally referred to solely as centres ). Within

the literature specifically addressing tenant mix, various

approaches have been taken. Abratt et al (1985), Greenspan

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

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

advising shopping centre owners on how to maximise the

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

(1994) and Bruwer (1997) offer case studies of centres,

analysing the strengths and weaknesses of their individual

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

in his review of the theoretical bases of retailers location

decision-making at the micro level, identifying both demand

and supply-side determinants. He considers the shopping centre

landlord s creation and management of tenant mix as the most

important supply-side influence on retail location at the micro

level. Despite this important role, little systematic research has

been conducted into landlord or investor perceptions of tenant

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

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

micro-location.

This study attempts to increase understanding of how investor-

landlords perceive tenant mix and particularly of how they

manage it. Shopping centres inevitably pass from the status of

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

practice, and decline into degrees of functional obsolescence. In

order to maintain asset value, landlords need to monitor and

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

existing physical and legal arrangements.

The research was carried out by means of in-depth interviews

with investor-landlords, their asset managers and letting agents,

followed by a larger questionnaire survey of asset managers and

investors. A review of the existing 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.

MANAGING TENANT MIX IN SHOPPING CENTRES IN THE UNITED KINGDOM

Introduction

1The concept of tenant mix

2Abratt et al (1985) provide probably the most comprehensive

list of the objectives and principles of tenant mix available.

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

"Tenant mix refers to the combination of business

establishments occupying space in a shopping centre to

form an assemblage that produces optimum sales, rents,

service to the community and financiability of the

shopping centre venture."

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

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

work together to enhance the centre s performance and operate

successfully as individual businesses.

These descriptions of tenant mix stress the underlying objective

of maximising shopping centre profitability, and are therefore

investor-orientated. They identify the key to maximising

profitability, which is maximisation of sales through provision

of the optimum service to the community. The concept of

tenant mix design therefore involves provision of a range of

merchandise and services, carefully chosen to appeal to the

catchment shopping population, as described by Bruwer

(1997). These services may include restaurants and other

catering outlets, and increasingly they also include leisure

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

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

provision of different types of merchandise is almost always

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

order to classify the merchandise on offer. Classifications focus

on characteristics such as price and quality, appeal to different

lifestyle groups, and service levels.

Kirkup and Rafiq (1994) provide a measurement-orientated

description of tenant mix as:

...a combination of factors, including the proportion of

space or number of units occupied by different

retail/service types, as well as the relative placement of

tenants in the centre .

massive swing towards domination of comparison shopping by

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

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

taking the bulk of space in new shopping centre developments

over that period.

As Nelson (1958) pointed out, the mutual proximity of

compatible retailers, as well as their business volumes, are

important in raising sales through comparison retail clustering.

The concept of comparison shopping used in tenant mix

management therefore has to include not only the selection of

tenants, but their relative locations within the centre.

CONVENIENCE GOODS

Convenience goods are described by Northern and Leonard

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

location, selection and buying are important. The group

includes food, newspapers and drinks — products typically sold

from local corner and parade shops, supermarkets and unit

shops, some of which are situated in shopping centres.

Steventon and Wood (2000) note that convenience shopping is

more important in smaller shopping centres. Whereas only six

of the top 200 UK shopping centres are convenience dominated,

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

The relative importance of convenience and comparison

shopping in the design and management of tenant mix therefore

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

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; 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, attracting shoppers to all areas of the

centre.

RICS Foundation • 6www.rics-foundation.org

Brown (1993) suggests that although there are many possible

classification systems available for these retail/service types,

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

In addition he believes that the choice of classification

influences our analysis of the tenant mix and of the underlying

forces which bring it about. This aspect of the subject makes it

particularly resistant to analysis.

The definitions above draw attention not only to the mix of

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

retailers.

COMPARISON GOODS

Northern and Leonard (1977) identify comparison goods as

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

suitability, quality, price and style being important factors in

their selection. The group is epitomised by fashion and

footwear, jewellery, and expensive household equipment. The

reason for the increase in sales when comparison goods retailers

cluster close together is their attraction to shoppers wanting to

compare similar goods before making a purchase. Nelson

encapsulated the effects of comparison shopping when he stated

his law of compatible retailing in 1958:

"Two compatible businesses located in close proximity

will show an increase in business volume directly

proportionate to the incidence of total customer

interchange between them, inversely proportionate to the

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 and social theories of 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). The current importance of comparison shopping for

shopping centre 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

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


RICS Foundation •7www.rics-foundation.org

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

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 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 by letting agents to a hierarchy of anchor

tenants, leisure and service providers, MSUs, lesser tenants, and

operators of barrows and kiosks. A study of the tenant mix

literature reveals a wide range of benefits that an investor-

landlord 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 shopping centre size and a centre s

potential attraction to shoppers. However, within the constraints

of a centre s size, Abratt et 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) as "a

balanced diversification of shops offering a wide range of

products and services". There are obvious space limitations on

centres abilities to offer a wide range of 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 al (1977) found that the

variety of tenant mix influences shoppers selection of a

shopping centre, and Stoltman et 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) were

motivated to shop at centres outside their home retail trade area

primarily by perceived inadequacies in the assortment of goods

on offer locally. A centre providing for shortfalls in the range of

goods in an area can therefore retain local expenditure and

capture sales from competing centres.


What is expected of tenant mix?

3


DIFFERENTIATING BETWEEN SHOPPING

CENTRES

Abratt et al (1985) state that tenant mix should create a specific

image for the centre, 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 approach to merchandise selection behind the

design of tenant mix at Bluewater, opened in 1999 close to

London s outer ring road. This 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 on shoppers image of any shopping centre

and thereby on centre patronage. Darden and Babin (1994)

show that this influence is exerted not only by an anchor s

functional characteristics, but also by its affective qualities,

which together 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

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

shopping centres suggests that this effect is not fully utilised by

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

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

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

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

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

encourage retailer diversity and enliven the mix offered to

shoppers.

CREATING AN EXCITING SHOPPING

EXPERIENCE

Shoppers can be attracted to a shopping centre by many factors.

The investor-landlord s objective is for them to purchase goods

and services, boosting retailers turnover and the share that they

can take as rent. However, shoppers motivations for visiting

the centre may involve socialising with family and friends,

browsing to gather information on possible future purchases and

relieving boredom, rather than making purchases of goods or

services. As Bloch et 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 to rest and eat, shoppers can be 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 on shoppers levels of excitement, which are

positively 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 and tracks its implementation over recent years

via the inclusion in shopping centres of cinemas and food

courts. Bluewater s themed leisure villages are a recent

example, providing break out areas targeted at different

customer groups, including restaurants, cafes, 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

Lists of tenant mix rules identify the importance not only of

selecting a balanced variety of tenants, but of locating them

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

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

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

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

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

developers tend to neglect this aspect of mix. Several authors

note the problems of achieving optimum location plans, due to

market weakness and larger retailers demanding specific

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

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

decisions, drawing people through the centre from the access

points, and avoiding areas of low pedestrian flow where few

retailers can thrive.


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.

MONITORING TENANT MIX

The prerequisite for successful management of retail tenant mix

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

profit achieved by its retailers and the implications for the

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

advocated the constant monitoring of sales performance,

competition and demographics for this purpose. She suggested

continual manager-tenant communication to allow managers to

understand tenants business needs. In the USA the use of

turnover rents informs and facilitates this dialogue, but in the

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

vacant unit and has no interest in keeping a retailer whose

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

landlord may protect its income stream by enforcing the

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

Tenant mix normally changes incrementally over the life of a

centre (Thomson 1999) in response to vacancies on liquidation,

at lease termination, by agreement with the landlord or by

assignment. Each vacancy presents an opportunity for the

landlord to modify the tenant mix within the constraints of the

market and the characteristics of the vacant unit (Kirkup and

Rafiq 1994).

PROACTIVE MANAGEMENT

Greenspan (1987) advocates proactive management of tenant

mix, rather than relying on changes instigated by retailers. This

can involve negotiations for surrender of leases, possibly

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

be wholly or partially refurbished and the tenant mix

repositioned towards a changed demographic or competitive

environment.



THE PRESSURE FOR TENANT MIX CHANGE

Retail formats are continually changing and, with the growth of

retailing via the internet and interactive television, can be

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

stresses that a successful tenant mix needs to respond to such

changes, requiring "continuous monitoring, evaluation and

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

suggest three reasons for the increased difficulty in maintaining

a successful tenant mix:

¥ heightened competition between centres, arising from their

proliferation and consumers greater mobility, has

created pressures for differentiation between centres by

means of tenant mix

¥ a difficult retail market, such as that suffered in the UK in the

early 1990s and again in middle-market fashion in

1999/2000, will result in falls in retailers space needs and a

reduction in landlords flexibility in managing tenant mix

¥ ever-changing demographics, fashion and consumer demand,

which lead to the decline of some older retailers and the brisk

expansion of new ones, often with different space

requirements

MANAGEMENT STRUCTURES

Peters (1990) suggested that tenant mix can evolve

organically through the operation of market forces;

unsuccessful retailers leave and are replaced by others.

Alternatively, the mix can be planned and actively managed.

Whereas most commentators assume the centre asset manager

is responsible for this process, Peters believes that:

"...notwithstanding the centre manager s

responsibilities...it is the ultimate responsibility of the

retailers in a centre to govern retailer mix. Indeed they

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

He suggests that tenant associations are well placed to drive

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

Prendergast et al (1996) investigated tenant-manager

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

shopping centres, that all the centre managers were located on

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

management structures operating for UK shopping centres. The

UK model has up to three layers of management involved in

Managing retail tenant mix

4



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 in order to achieve the 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 behaviour. There are no suggestions in the

literature that shopper surveys should be used as a means of

monitoring tenant mix success or identifying the need for

change.

LEASE MANAGEMENT CASE LAW

Landlords and their agents have evolved management tools to

deal with these circumstances. UK retail leases commonly

include clauses 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 tenant s covenants

are the landlord s main means of controlling which 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 by means of

lease clauses:

¥ In Chelsfield MH Investments Ltd v British Gas plc [1995] NPC 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 competition with an electricity showroom opposite.

¥ The landlord of much of Regent Street in London refused

consent for a jeweller to assign its lease to a bureau de

change and ticket agency on the grounds of its estate

management strategy. The decision was upheld by the Court

(Crown Estate Commissioners v Signet Group plc [1996] 2 EGLR 200).

¥ Perhaps the most significant of the three cases is Moss 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, in the landlord s

reasonable opinion, their sale was "consistent with the

principles of good estate management having regard to the

particular distribution of trades within the centre". The

landlord refused consent for an assignment to a computer

games retailer and the change of use involved, since its

policy was to concentrate fashion retailers in that part of the

centre. The Court decided that there was a tenant mix policy

in force, albeit unwritten, and the consent for assignment was

reasonably withheld. Under the Landlord and Tenant Act 1988, the landlord was required to show that it had acted

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

During the 1980s UK institutional investors favoured the

income security provided by 20 or 25 year leases to strong

companies. In the context of shopping centres, this meant

letting to strong anchors or national multiple retail companies.

In England and Wales, the Landlord and 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 and Tenant Act

1954 gives the landlord and tenant the opportunity to agree to

opt out of the Act s provisions for security of 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.

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 with a list of initial questions. The semi-

structured 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 as the most

practical means of data collection within the time 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 in-

house, so that there was no distinction between the two groups

of respondents. The investors included both institutions and

property companies. They were asked to respond only in

respect of the named centre. Thirty questionnaires were

returned, all with useful responses. Figure 1 provides a

breakdown by overall floorspace of the centres for which

responses were received. Appendix B contains a list of the

centres.

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

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. This group of retail specialists was self-selected rather

than representative, and may have been individuals with a

particular interest in developing tenant mix management

practice. The group of 40 people 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.


Research methodology

5S

qu

are

metr

es

Figure 1: Floorspace of respondent shopping centres

200,000

150,000

100,000

50,000

0


The results of the questionnaire survey are reported here,

supplemented by the 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.

EVOLVING TENANT MIX

Respondents were asked to distinguish between the importance

of seven considerations that interviewees had identified as

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

Figure 2 shows the responses, and highlights the primacy of

maintaining effective anchors. This is in accordance with the

roles attributed to anchor stores in the literature — positioning

the centre in relation to its competition, dominating shoppers

images of the centre and determining which other retailers can

be recruited and retained there.

Five other considerations are rated as critical or important by a

large majority of respondents. Of these, maximising rental

value and responding to current occupier demand are rated

only marginally higher in score than positioning against other

centres , choosing strong tenant covenants and meeting

unmet consumer demand in the catchment area . Theoretically

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

since it is the underlying driver of successful tenant mix, giving

rise to ideal competitive positioning and maximising rental

income.

It is interesting that respondents rate responding to consumer

demand less highly than responding to occupier demand , with

only half the number considering the former to be critical.

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

ascertaining the viability of new store locations, rather than

themselves analysing the unsatisfied consumer demand in their

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

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

retailers expertise, despite the fact that they may have an

imperfect understanding of the tenant mix as a whole.

Two BCSC workshop groups suggested that landlords should

analyse catchment data and pay more attention to demographic

changes, in order to tailor tenant mix to consumer demand.

They envisaged this information being shared with retailers to

ensure that all involved were making decisions based on the

best possible information. However, there were reservations

about the ability of asset managers to interpret such data

without employing retail experts. The benefits of this approach

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

recoverable from retail tenants.


Research results

6

Reflecting local stores and streets

Strong tenant covenants

Meeting unmet demand

Positioning against other centres

Maximising rental values

Current occupier demand

Maintaining effective anchors

Smallercentres

Largercentres

Allcentres

0 0.5 1.0 1.5 2.0 2.5 3.0Average score (0=not applicable 3=critical)

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


The fact that responding to occupier and unmet consumer

demand is scored comparably to maximising rentals suggests

that short-term value maximisation is not widespread. This

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

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

suggested that shareholder pressure for short-term increases in

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

growth potential arising from a well-chosen tenant mix.

However, BCSC workshop groups felt that pressure for short-

term rental growth associated with IPD benchmarking meant

that very few risks were taken in leasing and overall

performance could be damaged. They suggested that freedom

from short-term investment return benchmarking would lead to

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

concessionary rents.

The low score 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

context. There was no difference between the weight given to

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

fact that more small centres are embedded in town centre retail

contexts.

Figure 2 shows the differences in response to this question

between larger and smaller centres. Only positioning against

other centres differs noticeably, being more highly rated for

larger centres, perhaps because they compete over large

geographical areas.

LOCATION OF STORES

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

the second major ingredient of tenant mix is locating each

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

Respondents were asked to score issues involved in these

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

eight suggested issues, drawn from the literature and the

interviews.

Over 80% of respondents rated management of pedestrian

flows as either critical or important, prioritising it over other

seemingly important issues. The lower scores given to grouping

comparison shops, separating incompatible retailers, and

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

of skilful retailers to select or reject individual locations on

these bases and therefore concentrate on the whole centre

issues, which are outside the control of individual retailers and

for which the manager alone is responsible. Certainly the

attribution of the second highest score to good access to

catering is in accordance with this whole centre approach. It

is also likely that floorspace pricing automatically sorts

retailers, rendering the issue of distinguishing primary from

secondary malls relatively unimportant. The low importance

afforded to creating malls for different shopper profiles

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

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

apply to their centre at all.

The relatively highly perceived importance of separating

incompatible retailers compares surprisingly to the issue of

grouping comparison retailers, which receives much attention

in the literature and yet is given relatively low importance here.


Manage pedestrian flows

Good access to catering

Separate incompatible retailers

Distinguish primary from secondary

Mall merchandise profiles

Group comparison retailers

Malls for different shopper profiles

Separate competing stores

0 20 40 60 80 100

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

Minor

Not applicable

Critical

Important

Percentage of shopping centres



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

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

landlords had to defend their comparison retailing cores against

unwanted interlopers seeking to feed off the high footfalls

generated there. The explanation of this apparent anomaly

might then be that comparison retailers recognise their own

kind, relieving managers of having to steer them to the

appropriate location. Other non-comparison retailers seeking to

locate amongst them have to be positively managed into

locations that will enable them to thrive without damaging the

effectiveness of the centre as a whole.

POLICIES FOR MANAGING TENANT MIX

Kirkup and Rafiq (1999) remarked on the variety of

management structures operating in UK shopping centres. A

question aimed at identifying whereabouts in the ownership and

management hierarchy the responsibility for tenant mix policy

lies could have been better designed. Little more can be

inferred from the answers than that there is a hierarchy of

influence. On average, in-house asset managers and investors in

this sample have more influence than do outsourced asset

managers, letting agents and research consultants. Shopping

centre managers have marginally less influence than research

consultants, and principal retailers and anchor tenants are equal

lowest in the hierarchy. These results are unsurprising, except

the equal scores of principal retailers and anchor tenants, where

the latter might have been expected to wield more influence.

This may be a result of the current weakening of traditional

anchors such as Marks and Spencer plc, and the growing

influence of the main space users. This reinforces the

conventional wisdom, rather than the idea forwarded by Peters

(1990) that retailers should lead tenant mix management.

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

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

interviewee had subsequently been asked to produce written

policies for the tenant mix of several shopping centres, to

protect against unwanted assignments. These policies used

loosely defined retail categories to avoid a restriction on

assignment depressing rental value. Some interviewees had not

recorded a tenant mix policy to facilitate a defence against

unwanted assignments.

Respondents were therefore asked whether the tenant mix

policy for their centre was formal or informal, written or

unwritten and detailed or outline. Figure 4 shows the

responses. If informal/outline/unwritten policies are

characterised as being less developed and

formal/detailed/written policies are characterised as being more

developed, then it is clear that less-developed policies dominate

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

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

some centre mixes may be vulnerable to disruption by

assignment, or that investors may unnecessarily have to go to

some lengths to defend their mix.

Figure 4 suggests that less-developed policies are more

prevalent in smaller centres. Applying a chi-squared test to the

responses shows that the difference between the large and

small centres is statistically significant at the 5% level. This

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

developed tenant mix policy, with the possible implication that

smaller centres mixes are more likely to be vulnerable to

disruption by assignment.

Detailed

Formal

Written

Unwritten

Outline

Informal

0 2 4 6 8 10 12 14 16

Figure 4: Please describe the status of the tenant mix policy

Larger centres

Smaller centres

Number of shopping centres

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

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

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

had increased the formality of their policy following the case.

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 irregular intervals 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 response, ensuring that centre

competitiveness is maintained. In reality, continuous monitoring

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

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

process of monitoring tenant mix 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 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

methods, regular use is equal lowest for bespoke research and

turnover details, usually collected for calculating turnover rents.

Less than half the sample regularly used these methods. Of the

centres using turnover details, about half do so annually, with

only three centres following Greenspan s advice (1987) to

monitor turnover weekly or monthly. It should be noted that

turnover rents are normal in US centres, but infrequently used

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

many of the respondent asset managers. This may explain why

nearly half of the sample never used turnover details.


Asset managers at the BCSC workshop considered articulating

and communicating tenant mix policy as largely unimportant,

and some believed it could limit flexibility, creating a millstone

for managers. Differences in approach between small local

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.


Figure 5: Are you familiar with the decision in the case

Moss Bros v. CSC Properties?

Figure 6: Has the centre’s tenant mix policy become

more formal following the Moss Bros case?

No - 20%

Yes - 80%

Annually

Irregular intervals

Quarterly

Each letting

No - 75%

Yes - 25%

Figure 7: How frequently is this shopping centre’s tenant mix

policy reviewed?

23%

20%30%

27%


Interviewees described setting turnover rents for only a

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

others. These are often leases to independent retailers, the

performance of which is difficult to predict and which are

unable to bid competitively against multiples. In these

circumstances turnover rents are a practical form of rent

concession and monitoring them gives the manager warning of

failure. However, in centres where turnover rents are only used

for independents, they are an inadequate tool for monitoring

tenant mix unless supplemented by other methods. Several

centres also use a turnover index, presumably thereby achieving

coverage of all retailers performance. This is indeed the most

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

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

more often.

Several interviewees said that retailers are unwilling to reveal

details of their turnover, for fear this highly confidential

information may leak to competitors. Turnover indexation is a

more acceptable alternative, based on retailers reports to the

asset manager of turnover variations over time, expressed as

percentage changes. Figure 8 shows that this method of

monitoring retailers performance was used by about two-thirds

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 against the others in the centre. This system was

advocated by several of the BCSC workshop groups as the ideal

practice to aim for. However, some expressed doubts that asset

managers had sufficient retailing expertise to utilise fully the

potential of turnover data.

Two respondents ruled out shopper surveys altogether, and eight

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

sample carried them out predominantly annually or quarterly.

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

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

it occurred predominantly on an annual basis.

Six centres reported monitoring habits which certainly do not

match up to the standard of frequency advocated in the US

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

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

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

more methods used at more than annual frequency, would

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

change.

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

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

collected the data that might indicate a need for policy to

change. This suggests that the data collection does not

automatically initiate a review of policy, but that review often

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

IMPLEMENTING TENANT MIX POLICY

Interviews yielded ten major means of implementing tenant mix

policies. Respondents were asked to 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.


Turnover details

Bespoke research

Shopper surveys

Turnover index

0 5 10 15 20 25 30

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

Quarterly

Monthly

Infrequently

Never

Annually


Nonetheless, this suggests that attention should be paid to Moss

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

interviewees used pre-emption in alienation clauses, to regain

control of units where retailers wanted to leave.

Interviewees agreed that lease lengths were typically fifteen

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

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

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

especially those taken by independent retailers and caterers with

less secure covenants and which do not have a proven track

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 and

Tenant Act 1954. Anchor stores are locked in for longer periods


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

relatively high frequency of amalgamating units, buying out

tenants leases, moving them within the centre and including a

landlord s break clause in the leases, suggests a proactive

approach by landlords. Nearly all interviewees regarded buying

out tenants as the most proactive response to diagnosis of tenant

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

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

important destination retailer, and often to amalgamate units to

provide the larger unit sizes increasingly required by such

retailers (Knight Frank 1998).

TENANT MIX 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.

0 4 8 12

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


Extend the centre

Concessionary rents

Leases of 10 years or less

Surrenders without premium

Landlord’s break clauses

Poorly

Partially

Fairly

Well

Completely

Move tenants

Buy out tenants

Amalgamate units

Use clauses

Alienation clauses

0 1 2 3

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

Larger centres

Smaller centres

All centres

Larger centres

Smaller centres

All centres

Average scores (never=0, always=4)


Interviewees thought that the pace of retail change had

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

expansion programmes by some anchor stores, the weakened

appeal of middle-market fashion provided by national multiples,

and the growing importance of destination fashion retailers

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

per cent of respondents considered that the current decline in

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

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

shown in Figure 10 appear to recognise that managing tenant

mix is challenging in such a context. Overall, less than 50% of

respondents thought they had kept up with change well or

completely.

Managers of larger centres in the sample are almost twice as

likely as managers of smaller centres to be confident that they

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

Similarly, managers of smaller centres are almost twice as

likely as managers of larger ones to believe that their centres

have only partially succeeded in keeping up with retail change.

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

statistically significant at the 5% level.

Six factors hindering tenant mix updating were identified from

interviews and the literature. Respondents were asked to score

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

believed that lack of investment and of proactive management

had hindered tenant mix updating. The perceived inability to

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

other causes. Inappropriate unit sizes were identified as most

influential, ranked on average as important. Only one

respondent mentioned splitting units, whereas interviewees

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

current demand from fashion retailers, as described by Knight

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

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

these two causes support the intuitive interpretation, that there

are infrequent opportunities for changing the mix when units

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

by interviewees, may in time alleviate this problem.

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

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

difficulty, enjoyed in successful centres where demand is high.

It is arguable that lack of appropriately sized units, and of

vacant units, could be ameliorated in thriving centres by a

combination of proactive management and investment, buying

out tenants on long leases to amalgamate units and meet current

retailer demand. This solution would only be successful, as

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

the contribution to overall footfall, and eventually rental values,

of introducing an appropriate destination fashion retailer or

other main space user.

The unanimity between managers of larger and smaller centres

on these factors is perhaps surprising. The only noticeable

difference is in their attitudes to the need for more proactive

management. However, neither group thought this a significant

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

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

prepared to admit to it at all.


0 0.5 1.0 1.5 2.0 2.5

Figure 11: What factors, if any, have hindered updating the tenant mix in this centre?

Average score (not applicable=0, critical=3)

Lack of proactive management

Lack of investment

Lack of retailer demand

Long leases

Lack of vacant units

Inappropriate unit sizes

Larger centres

Smaller centres

All centres


Respondents were asked finally whether they thought the

centre s tenant mix would need to 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

the short-term, reserving judgement over a longer time frame.

Comments indicated that some retail sectors were believed to

be more vulnerable than others, notably 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 influenced by the 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 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 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 plc v CSC 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 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.


Summary and conclusions

7


Policy review appears to be more irregular and often depends

on stimuli such as tenant change. Despite the suggestion that

some asset managers could be more proactive, the incidence of

tenant buyouts, amalgamation of units, moving tenants and

operating landlords break clauses suggests that 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.

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

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. A larger sample might have

provided opportunities for better differentiating practice

between different types of centres, 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

approach to shopping centres tends to be remote from the

customers who are the centre s lifeblood. It is also too

conservative.

Shopping centres would be more effectively managed as retail

businesses, based on the marketing concept of business. To

achieve this, centres need to be more in touch with:

¥ national consumer trends

¥ national retailer trends

¥ consumers and trends in the catchment area

¥ shoppers visiting the centre

¥ tenants in the centre

To avoid creeping tenant mix obsolescence, management needs

to become more proactive, responsive and flexible. To achieve

this, centres should have:

¥ an ongoing programme of monitoring key sources of

information

¥ an explicit direction, though subject to review, based on

thorough research

¥ a marketing strategy with priority targets and a clear message

¥ a greater willingness to risk investment tactically to achieve

higher returns

¥ a conscious programme of annual improvement

Shopping centre management needs to evolve away from the

negative battle of landlord versus tenant, towards more modern

and positive forms of partnership. Initiatives to achieve this

could include:

¥ more openness between the parties, based on shared goals

¥ pooling of research on the catchment area

¥ more frequent opting out of the Landlord and Tenant Act 1954 (England and Wales)

¥ shorter lease lengths

¥ more use of turnover rents

¥ an understanding that underperforming retailers will be

assisted, but must leave if they cannot improve

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:

¥ A large amount of data is collected and relied on by retailers

and centre asset managers. How can this be assembled and

managed 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 constitutes a marketing strategy for a shopping centre

and its tenants? How should such a strategy be formulated

and implemented?

¥ How can centres make the transition from a traditional 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?


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Appendix A Appendix B



LIST OF INTERVIEWEES

Jenefer Greenwood CB Hillier Parker

Graham Chase Chase and Partners

Kay Chaldecott Capital Shopping Centres

Jerry Winter Churston Heard

Mark Williams DTZ Debenham Tie Leung

Sarah-Jane Curtis Grosvenor Estate

John Strachan Healey and Baker

Yvonne Court Healey and Baker

Justin Taylor Healey and Baker

Keith Redshaw Land Securities

Ian Pearson Lamb and Edge

Paul Cawood Lambert Smith Hampton

Keith Stone Lendlease

Rob Wingrave Lunson Mitchenall

Gordon Gabbani MEPC

Bob Fletcher Sanderson Townend & Gilbert

SHOPPING CENTRES THAT RESPONDED TO

THE SURVEY

Arndale Centre, Eastbourne

Arndale Centre, Wandsworth, London

Blackburn Centre, Blackburn

Bluewater, Dartford

Brent Cross, London

Broadmarsh Centre, Nottingham

Buchanan Galleries, Glasgow

Buttermarket, Ipswich

Castle Mall, Norwich

Churchill Square, Brighton

Cleveland Centre, Middlesbrough

Eastgate Centre, Gloucester

Ellesmere Centre, Manchester

Elmsleigh Centre, Elmsleigh

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

tenant mix

Documents

mary lou downie

inappropriate

main space

managing tenant

good estate

initial tenant

reflecting

successful