SHOPPING CENTRE RETAIL

By Anthony Dylan Anak Frankie Jurem

The shopping centre industry boomed in the late 80s and throughout the 90s in Malaysia. After the year 2000, shopping centres have seen challenges coming from alternatives and options. It got even more complex after the Covid -19 global lockdowns in the 2020s.

The options of retail channels have increased quite a bit. Before, you only had the option of street shops and stratified vertical properties which took on the moniker of a shopping centre or mall. Much has been said about the benefits of shifting one’s business into a dense like-minded community of business owners or operators.

Today, those reasons can no longer be valid. I have had quite a few conversations with those who wanted to know more about how a shopping centre leasing and marketing work. This was important as they went into negotiating with the property owners. Opening a store or a food and beverage establishment in a shopping centre is rather straight forward if you are dealing with responsible leasing and marketing representatives. It does not matter if they are juniors or seasoned seniors. They should be able to guide you through the process.

Typically, before you approach the shopping centre of your choice, you should at least know the business you are proposing to them and the requirements you would need from the landlord. This would include the following information should be prepared before meeting the landlords:

1. Business proposition
2. Unique selling points
3. Mechanical and Electrical Requirements
4. Construction and Structural Requirements
5. Commercial Expectation
6. Marketing Assistance at the onset of opening and throughout the duration

At the back of your end, you would need to know your expected Business Plan including your Proforma Financial Statements so you would know what type of commercial structure can be profitable.

I would always advise that any business approach the Landlord with the ability to project their business as a unique addition to the shopping centre’s objective for improved footfall and sales. The location within the shopping centre is a subjective matter. Landlords on the other hand should also be ready with their own ability to hear out and thereafter make clarification at the first meeting. Showing a potential location or several locations would always be the norm.

Let me give you an insight into how a typical Leasing department works in the context of a shopping centre. Some may have variable procedures, but good ones would always do the following:

1. Tenant Mix led leasing. The mix is an important part of leasing a property as it creates a dynamic pull and push for the commercial and socio-economic activities.
2. The commercial structure of the rent and shared sales revenue percentages. This structure typically works on 3 basic types and would advance from here. These are the Base Rent or % of Gross Turnover whichever is higher; Base Rent plus % of Gross Turnover exceeding an agreed target or Base Rent plus % of Gross Turnover. In all these cases, the Service and promotions charge would be paid separately.
3. All measurements in the shopping centre industry would be in sqft when it comes to rents and sizes for leasing. The metric system strangely has never been adopted in the industry. All sizes in meters are converted into feet under the imperial system.
4. Security Deposits would require the equivalent of 3 months’ Gross Rent (Base Plus Service and Promotions Charge). If you are on a 3-year duration and have a yearly escalation in your RM per sqft/mth rental rate, then the 3 months value is based on the highest RM psf/mth rental rate.
5. Restoration Deposits for reinstatement and damages upon exit and Utilities deposits.
6. Stamping Fees and Legal Fees are expected to be borne by the tenant.
7. Professionally drawn fit out and renovation plans which would include the design M&E and construction, insurance and license application to the local government as well as relevant authorities’ approval would also be required.

The whole 7 items are simply basic expectations when you open a retail store in a shopping centre. If you are in the Food and Beverage sector, you would also need to clear the required fire protection protocols with the kitchen and also the relevant health requirements mandated by the government.

Shop houses and some rather grey styled management would normally allow leeway in the requirements as they would be rather straightforward in their negotiations with you. Most shop houses do not have fire sprinkler systems unless they are of certain size and use type. This can be checked with the authorities.

On the side of the business owners seeking to lease a space, they should confidently ask for the market positioning of the shopping centre in the coming years as any shifts may have a significant impact on your business. They can easily ask about the 5-year positioning and general plan. Upon providing a proposal by the Landlord of the intended space location, it is important that the lessee asks for the strategic reason of such a placement. This would provide you with confidence in knowing whether the leasing team understands their tenancy mix strategy confidently. This then allows you to align your proposal and business plan going forward in advanced negotiations.

Renting and leasing a space within a shopping centre would need you to be financially prepared as the lease terms are normally a 2 year or 3-year initial term for shop spaces with the shopping centre. The renewal term offered is normally a duration of the same length, but the rental term is normally kept open for further negotiation. At best there would be a negotiated percentage cap for the rent increase. You cannot assume that you have the space longer than that for depreciation automatically.

Do not forget that there are also house rules which shopping centres have where they would cover the compliance of stock delivery, waste management, green energy, opening hours, visual merchandizing display and the allowance of shop closures.

Opening a retail space is challenging. Shopping Centres are also facing challenges with the commercial terms. In this challenge, we see an opportunity to evolve.

Cheers Subang Jaya!