When it comes to shopping centres, caution is the watchword.  Incredible as it seems, despite flashy brochures and glossy presentations, establishing a shop or franchise in a shopping centre is one of the riskiest investments retailers make.  That “top spot” or “special deal” can easily turn sour and even the big boys make their fair share of property mistakes!

We look behind the shopping centre hype.  It’s well known shopping centres often produce greater sales, but in reality, it's highly competitive and risky for the uninitiated.  Potential problems are many; bully-boy management, change of personnel, alterations to premises or a redevelopment, imposition of competition (affecting trading performance) or a simple communication breakdown, to name just a few. 

Many retailers (some big names included) have been burned by the rush for space in shopping centres and many mum & dad businesses exist on a knife-edge.  Can you recognise all hidden dangers and costs contemplating a shopping centre?  Do you truly know?

• The real impact of your landlord leasing a shop or push cart to your direct competitor? 

• The likelihood and impact of redevelopment or relocation clauses and how much would it really cost you? 

• How you’d feel with no say in the decisions of centre management regarding promotions, operations and management affecting your business?

• What’s the true risk over the life of the lease, especially if you can’t close or on-sell your business if it proves a loss maker?

• The real reasons why landlords insist you provide sales and taxation records?

In recent years, shopping centre occupancy costs have risen dramatically.  Prior to last decade’s recession and unprecedented floor space expansion, rent and outgoings were not major issues for most retailers - sales increased and rentals were affordable.  Studies now show average rents paid by specialty retailers in shopping centres are at the limits of profitability, and when financial commitments become difficult to keep for whatever reason, disputes are inevitable.  Landlords and tenants have competing interests and if you sign up blind, you may well get “shop shock” – you’re a virtual slave to your business, landlord or franchisor.  Don’t think this doesn’t happen, it does!

Log this in your brain.  Small retailers are last in the food chain of importance in shopping centres, so who really pays when you sign up to a costly “white elephant” or when times are particularly tough?

Small or large, shopping centres deal with leases day-in-day-out.  They access highly specialised legal and industry advice and often know the “ins and outs” of the businesses in the centres they manage; they are practiced negotiators, skilled at maximising the landlord’s investment.  On the other hand, most retailers deal with lease issues only occasionally, in initial negotiations or in the event of a dispute.

Location evaluation should extend to researching the centre management or leasing agent to evaluate their professionalism prior to signing your lease document - it’s a good indication of how professional the property will be managed is managed how any potential disputes will be handled.  Negotiating a retail lease is a complex task!