Published: 31 October, 2007
During the past year, there has been increasing interest from centre owners to drive mall commercialisation revenue, while our client enquiries have tripled. Maintaining the income stream from a centre has become more difficult, with the threat of falling yields in shopping centre investments and the increase in voids, due to retailer receiverships, such as Jessops, Fopp and Adams. Landlords are therefore looking at commercialisation as real added value.
As a consultancy, in order to maximise return from the mall space in a centre, we firstly need to understand how far the owner is willing to go in terms of activity in the common areas, as there is a very fine balance to be achieved between generation of income and impact on shopping experience.
Changing this balance can affect the consumer profile of the centre and might also affect footfall together with the ability to attract certain retailers into the centre, for example, high-quality fashion retailers. In fact, a growing number of new lettings to retailers, such as River Island, Topshop and Debenhams, are now stipulating an exclusion zone in front of the stores in their leases, which often further specify what uses are excluded.
We approach the letting of the mall space in our centres in the same way as the traditional retail units, applying similar asset management principles to both: our focus is on tenant mix and optimising income from the space. One of the advantages of commercialisation is that it can offer goods and services that are not available in the retail units, thereby broadening the retail offer and experience to the consumer. It also gives an opportunity to grow new retail concepts, which were previously not offered in the traditional shopping centre environment, such as Sky, British Telecom, HairPOD and hand car valeting.
The majority of the centres we work with are existing schemes, and with these, we are often constrained in what we can do for practical reasons, such as cost of services enabling works or new fire regulations. All these can be overcome, but the centre owners need to be aware that there can be expense involved.
Exciting opportunities are presented when working on centres as they come out of the ground. Working with these new-build centres means that you can manipulate the practicalities to work around you, rather than the practicalities dictating what you can or cannot do. Being able to pre-plan and design in the infrastructure to support a strategic commercialisation plan is ideal, enabling a really strong platform to be built from the outset and a far faster route to optimisation of the income.
We start with providing a gap analysis to our clients, as even today, specialist advice is required on what is available to be implemented in shopping centres. Once all activities are in place in the centre, our ongoing task is to ensure that these are all performing to their best, and if not, then negotiating, renewing or replacing as necessary to keep the ever-changing space performing to potential and the customer constantly engaged.
The commercialisation market is fast-moving, and like any new market, it has yet to mature and is therefore quite volatile, mainly due to the instability of covenant strength. There is a high turnover of business in the industry, many of the companies are venture capital-backed and many have not been trading for longer than two years. This means they are not able to provide accounts or guarantees, so pose a risk to the landlord. While this is an exciting challenge for us, it does mean that our clients require a high degree of expert management from our professional team to collect revenues and keep the commercialisation driving forward in a sustainable way.
Media (for example, advertising panels), promotions (such as car manufacturers and brands) and RMUs are currently the largest slices of non-rental income in the shopping centre arena, comprising about 70 per cent of total income across our portfolio. Although the markets in each are developing, they are still very fragmented into several smaller individual businesses. Over the next 12 to 18 months, we forecast that we will see the commercialisation market consolidate, something we have already seen with Photo-Me and Street Broadcast, which have both been on the acquisition trail in the past.
With the increasing focus on income return from the malls, it can sometimes be easy to lose sight of the customers, who, after all, are the ones who drive the whole shopping centre industry. Balance is crucial in all activities, and in commercialising a mall we should at the same time create a better retail mix and more stimulating experience for the consumer.