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THE HONG KONG INSTITUTE OF

SURVEYORS
JUNIOR ORGANISATION Pre-Qualification Structured Learning

Leasing Strategy of a Shopping Centre


Date: 29 Jun 2002

Speaker: Ivan Ng, Government Property Agency

PQSL: Leasing Strategy of a Shopping Centre

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 Centre

Part 1 Types of Shopping


Centre

PQSL: Leasing Strategy of a Shopping Centre

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

PQSL: Leasing Strategy of a Shopping Centre

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 Landlords intention

PQSL: Leasing Strategy of a Shopping Centre

Part 2 Leasing strategy for a


new shopping centre

PQSL: Leasing Strategy of a 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

PQSL: Leasing Strategy of a Shopping Centre

2. Leasing strategy for a new shopping centre


Tenant mix (by categories)
Anchor tenant - dont be dominated by
Department store
Chain stores/Unique stores
Entertainment facilities
Location of tenants e.g. foodcourt etc.
In US, large department stores at both ends with
small shops along the passageway

PQSL: Leasing Strategy of a Shopping Centre

2. Leasing strategy for a new shopping centre


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
contract out
Marketing and promotion

PQSL: Leasing Strategy of a Shopping Centre

2. Leasing strategy for a new shopping centre

Leasing process
Finding tenant - by Landlord or thru Agent
Agreed on location, term, use, area on rent
Sign the offer (binding) - payment of first months rent
and deposit
Fitting out
Signed the Tenancy Agreement (usually later than
possession date)
Stamping

PQSL: Leasing Strategy of a Shopping Centre

2. Leasing strategy for a new shopping centre

Tenant Mix
by categories
by location
by size
by price

PQSL: Leasing Strategy of a Shopping Centre

2. Leasing strategy for a new shopping centre


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

PQSL: Leasing Strategy of a Shopping Centre

2. Leasing strategy for a new shopping centre


Shoppers

Class

High

Gucci
Swank
D&G

Middle

Crocodile

Low

Price

Low

Middle

Cityplaza

High

Pacific Place

PQSL: Leasing Strategy of a Shopping Centre

2. Leasing strategy for a new shopping centre

Chain store or theme store


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

PQSL: Leasing Strategy of a Shopping Centre

2. Leasing strategy for a new shopping centre


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 Landlords point of view: while there is a guarantee
of minimum income, the Landlord can receive more if the
business is better than expected

PQSL: Leasing Strategy of a Shopping Centre

2. Leasing strategy for a new shopping centre


From Tenants 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

PQSL: Leasing Strategy of a Shopping Centre

2. Leasing strategy for a new shopping centre

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

PQSL: Leasing Strategy of a Shopping Centre

2. Leasing strategy for a new shopping centre


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.

PQSL: Leasing Strategy of a Shopping Centre

2. Leasing strategy for a new shopping centre


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;

PQSL: Leasing Strategy of a Shopping Centre

2. Leasing strategy for a new shopping centre


Valuation of Shop
Comparison method - nearby shops of same
categories, 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?

PQSL: Leasing Strategy of a Shopping Centre

Part 3 Tenancy Administration

PQSL: Leasing Strategy of a Shopping Centre

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

PQSL: Leasing Strategy of a Shopping Centre

3.1 Tenancy Agreement


Termination and break clauses
Rent review- refer to arbitrator or expert witness

PQSL: Leasing Strategy of a Shopping Centre

3.1 Tenancy Agreement

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

PQSL: Leasing Strategy of a Shopping Centre

3.1 Tenancy Agreement


Option to renew
Users requirement? Whether other use require
landlords approval?
Submission of gross receipt for T/O rent
Landlords obligation
Insurance and Indemnification

PQSL: Leasing Strategy of a Shopping Centre

3.1 Tenancy Agreement


Tenants obligation
Maintenance responsibility -- usually landlord be
responsible for external and structural while tenant
to non-structural and internal repair
Sub-letting
Stamp Duty

PQSL: Leasing Strategy of a Shopping Centre

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

PQSL: Leasing Strategy of a Shopping Centre

3.2 Technical and Management issues

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

PQSL: Leasing Strategy of a Shopping Centre

3.2 Technical and Management issues


Marketing and Promotion
Regular events e.g. fashion show, car exhibition,
lucky draw, seasonal greetings
VIP card to patronage - given respect for frequent
shoppers

PQSL: Leasing Strategy of a Shopping Centre

3.3 Tenant mix review


Budgeting at the end of each year
Review the performance of the centre and the
tenants performance, by categories and unit sale
3 R
Renew, Relocate, Remove

PQSL: Leasing Strategy of a Shopping Centre

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.

PQSL: Leasing Strategy of a Shopping Centre

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

PQSL: Leasing Strategy of a Shopping Centre

3.4 Interesting tips for Shopping Centre

Information Desk
Toilets
Foodcourt location
Restaurants - types and location
Chain stores
Dept Store/Hypermarket as anchor tenant

PQSL: Leasing Strategy of a Shopping Centre

3.4 Interesting tips for Shopping Centre

Display area
Booth/kiosk
Ambience music
Skylight

PQSL: Leasing Strategy of a Shopping Centre

3.4 Interesting tips for Shopping Centre

4 P
Place
Price
People
Promotion

PQSL: Leasing Strategy of a Shopping Centre

3.4 Interesting tips for Shopping Centre

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

PQSL: Leasing Strategy of a Shopping Centre

Thank You!