The Right Location Has to Be Matched by the Right Lease

For many, when they enter into a lease or purchase a business with a lease, it is unfortunately human nature that any research of the location and its suitability stops there.

The Right Location Has To Be Matched By The Right Lease

Retail leases are complex with very specific conditions and critical events, and it is safe to say that it is not until one of these events is upon us that we scramble to pull together data. The data invariably is limited to the current shop and is usually skewed to support a singular position on rent. Suburbs, shopping strips, retail precinct and shopping centres and the market they create or operate in are constantly changing.

Is my shop still relevant? Is it still suitable for my business? With price disclosure (accelerated and expanded), these two questions need to be asked. Research — in relation to not only the current location but also alternatives as well as research of the shopping centre/retail precinct in conjunction with market pitch (branding), your industry, the Lessor and your competitors — is mandatory.

Research Is Mandatory

I use as an example to illustrate a recent outcome of applying sound research an existing pharmacy business we assisted with a pending lease renewal, which evidenced that the business did not actually need to remain within their shopping centre.

Being adjacent to a large supermarket for over 10 years, the Landlord’s expectation on rent when compared to the real estate performance identified that these premises were no longer suitable and renewing even at the passing rent was not prudent. Part of the shop research included nearby premises, and with this data available, the pharmacist was able to make the bold decision to relocate.

Although seen as an inferior site, the vacant video shop directly across the road with the main road (corner) access, dedicated parking and even a pylon sign proved to be far more suitable for the future of this business (not to mention a highly motivated Landlord).

The Outcome

Not only was the occupancy cost halved (not to mention some generous rent free and incentives) but also the business was free from the constraints of the shopping centre in the areas, of trading hours, signage, marketing and car parking.

In the case of the pharmacy business itself, prescription numbers increased through greater access and convenience along with trading hours to meet their patients’ needs and not those of Woolworths.

Retail sales did reduce slightly at first; however, with the support of their franchise, the ranging and merchandising were realigned to meet this new customer demand and convenience. These sales soon exceeded the old shopping centre site. The cost of the move was more than covered by the significant increase in profits, and when dovetailed with a long-term lease with options, the value of this business reached levels that would never have been achieved beside Woolworths.

We were pleased to learn that the Lessor of the “old” shopping centre site is still wondering what happened.

Our client was well researched and now trades directly across the road with the comfort that no competing pharmacy can take up a lease.

Information Is Power

These same lessons apply to any business trading under a retail lease. The value of research not only at a major lease event but also ongoing can only empower you. Think of the leverage you create at say on annual rent review with your Landlord.