Striking a win-win between kiosks and permanent tenants, shopping centres are absolutely focused on achieving rent roll. The recent spate of retail development throughout Auckland led Paul Keane, from insight-led property and design company, RCG, to have a hard look at some of the longer-established shopping centres. That decision included a few visits, but he avoided the new NorthWest centre as it is still in the honeymoon period and will take a while to settle. So what was discovered? “
;The most apparent theme is that centres are absolutely focused on achieving rent roll,” he explained. “That is, getting as much rental out of available space as can be possibly achieved. But at what damage to the centre or retailers?
“Let’s step back a little. When a new centre is being considered, the developer will in the first instance create a retail plan, and then approach a couple of major retailers to lease space. Once secured, the rest of the leasing program kicks in and the centre’s specialty stores are leased. All straightforward stuff.”
However, Keane queries how much profile the leasable spaces have in terms of location in the centre and store sight lines.
“This is extremely important to a tenant,” he explains. “Most jewellers will want a corner location so that they have maximum exposure. Fashion stores want to be located in a fashion zone with a wide frontage, whilst the pharmacy will want a key location, probably near the food court. All simple retail planning as the locations will work well for the retailer and the centre overall. The plan attached to the lease will demonstrate the location, so that the tenant is aware of where the store being leased will be located. And there will be an assessment of pedestrian traffic flow.”
Kiosks create good revenue, but Keane ponders what happens after a few years of occupation?
“The centre management starts filling up the common areas with kiosks. Not such a bad thing, as they create good revenue,” Keane explained. “However, at what point do the rights of the ‘permanent’ tenants kick in? That is, the fashion retailer which has spent a large sum of money fitting out the store, only to find that after a year or two a number of kiosks occupy the space in front of the store, limiting exposure and customer access,” he said.
An example is Botany Town Centre in Auckland, which demonstrated just how bad kiosks can be at impeding regular customer traffic flow. In fact, the central plaza was awash with one kiosk or another, and the common areas were virtually impossible to cross from one side to the other due to kiosks occupying all the available common area.
Keane recalls developing a new CBD centre many years ago, which had a very high profile.
“It naturally attracted high profile retailers. After a few months of trading, it became apparent that the centre was trading well, so we decided to place some kiosks in the common area. This entangled us in an interesting dispute with certain retailers who objected to their ‘sight lines’ being impacted. And the result was that we understood their position and withdrew to a more agreeable position. Effectively a win-win for each party.”
So, what are the respective parties’ rights in these matters? It depends on what is contained in the lease in terms of common area occupation. The tenant has the right to trade, and the landlord has the right to use the common area, but not to the detriment of the quiet enjoyment of the tenant and their business.
Some tenants will ensure their lease contains provisions that protect their interests by including terms which preclude the occupation of the common areas in front of their stores. Certainly, as the economy grows and demand for retail space continues to grow, pressure will be on shopping centre managers to use every piece of real estate to create revenue.
Keane concludes by cautioning against the overkill of the kiosk in common areas as retailers and customers will react negatively in the long-term. And, as the economy slows, the kiosks will abandon the mall but regular retailers will remain.