National and regional retailers have embraced tenant representation for many years as a way to bring local market knowledge to their real estate site selection equation. The local retailer is apt to say, “I know my market well and what locations will work for me, so why do I need a tenant representative to increase my cost?”
Retail is just different! The retail tenant is not necessarily looking for the lowest rental expense cost solution, but the most profitable location that will generate the greatest sales in relation to the total occupancy costs. The relationship between the retail tenant and the landlord is a partnership that requires an ongoing relationship.
The tenant representative is a direct extension of the retailer’s team, an outsource resource who is 100 percent committed to helping the retailer find the best and most profitable and high performing locations to operate their business.
So, why hire a tenant representative? It would start with asking a few questions, including:
- Do you have the time, resources and expertise to do the market research necessary to identify all the potential locations, including the ones not readily on the market?
- Do you know the market effective leasing rates of all the retail trade areas you may consider? This is the real leverage!
- Do you have both the time and expertise to deal with the various brokers and landlords you will encounter while running your daily business?
- Do you understand that quoted rents include a brokerage fee?
- If you choose a location and it fails, do you have an exit strategy?
Very few local retailers utilize the services of a good tenant representative, but could benefit in the following ways, in addition to local market knowledge.
Time. The site selection process requires more analysis of many more selection factors than in years past. A tenant representative can provide you access to up-to-date market information, including demographics, psychographics and leasing opportunities that may not even be on the market.
Money. A good tenant representative will not only save you money on the easily identifiable quantitative points as lower rents, higher tenant improvement dollars and free rent, but also on the qualitative issues that could include lower renewal options, caps on controllable expenses, exclusives, kick-outs and the right to sublease.
Profitability. It is important to optimize your retail location from the point of profitability rather than just the lowest rental cost.
Financial Analysis. The true cost of occupancy for a retail tenant is beyond the negotiated base rental rate to include such charges for amortized tenant improvement allowances, common area maintenance, real estate taxes, utilities, construction costs and property insurance.
Navigate. The CRE leasing process is complex from the initial letter of intent through opening of your business. The decisions you make today last the lifetime of the lease. This will include help with the necessary paperwork to make your business venture a success.
Leverage. Knowledge is king! The more information and expertise you have on your side, the better deal that you will get. This created leverage and knowledge helps you mitigate risk.
Connected. Choose a professional, well-respected retail tenant representative who is well-connected to both the brokerage and landlord community. This will provide tenant opportunities that may currently not be available.
Facilitator. The job of the retail tenant representative is to serve his client. Sometimes this may include being a voice of reason explaining the current market conditions to you, playing the “bad cop,” or settling disputes with the landlord to maintain the harmonious relationship.
Interest. Since the tenant representative is working 100 percent on your behalf.
The best retail landlords recognize the benefits of dealing with knowledgeable tenants who have been educated by a quality tenant representative as to current market conditions and have been properly prepared by their extended tenant representative team as to the leasing process.
The commercial real estate leasing process is both complicated and risky. You would not go to court without a lawyer, and you would not meet with the IRS without your accountant. Why should you go into what for most retailers is the second-greatest expense for your business without an expert on your side?
Shawn Massey is a partner with The Shopping Center Group, a third-party retail real estate advisory firm, in its Memphis office. He is the 2014 president of the Memphis Metro CCIM chapter.