Much before the onset of the COVID-19 pandemic, an already beleaguered real estate sector had real estate practitioners seeking out ways to making their properties more efficient and valuable. Beyond technology-led changes, few professionals in the real estate sector have a view on ‘their place in the Anthropocene’. Many of my colleagues though have a much keener interest in when their tenants will pay their rentals!

What the COVID-19 crisis has done is to channel more attention within the industry

to re-evaluate both the constraints and opportunities that their ‘assets’ offer.

People’s behaviour and movement have been fundamentally reshaped by the crisis,

and so has their relationship with retail spaces like shopping malls.

Just because a building is called a ‘shopping mall’ does not commit it to remain a mall forever.

A recent ‘wow’ winning moment for me was when I persuaded the owner of a retail portfolio to review their entire letting strategy and to consider the re-purposing of two of their malls to integrate multiple purposes. The arguments that I presented in support of my proposal and being a longstanding RICS member, assisted the Client in engaging me to give effect to the re-purposing project.

Yesterday’s shopping malls could be better used as mixed-use developments, including a shopping component, alongside a medical clinic, parking garage, an eCommerce fulfillment center, and even an inner-city urban farm.

Figure 1: Why, How and the benefits of re-purposing

“Retailers exist to manage and expand the adventure of their retailing craft, to serve their customers, to sell goods and services to customers. Landlords and Developers exist to ensure that Retailers can practice their craft.” (Donny Gordon, founder – Liberty International) 

In a nutshell, mall owners and developers are responsible to ‘bring in the crowds’, and retailers are responsible for carrying out sales and conversions. When times change and retail-chains consider store closures, the following issue is traditionally only considered:

Cancel the lease and ‘get out’ at all costs, leaving the other party with the problem. This leads to a ‘lose-lose’ mentality applying to both Landlords and Tenants, with each party thinking that they are getting an advantage over the other. 

Both parties seem to forget they are dependent on each other due to the following reasons:

• Long term relationships exist with established landlords and tenants
• Retailers have leases in other properties with the same landlords
• Existing relationships and pipe-line actions include renewals, extensions, expansions, new stores exist 

Why are retailers and retail centre landlords operating devoid of daily sales values?

The answers are -

1. Point of Sale (PoS) Systems is an international best practice
2. PoS Systems are audited annually – in some markets, the annual value is what is used, exclusively!
3. When you don’t measure sales, what is missing is the measurement of the trajectory of trade, average customer purchases (‘ACP’) and general per retailer per retail category sales analysis 

Due to COVID-19, the results of the poor noted above practices (by both parties) have been accelerated and are exposing worsening property fundamentals like:

• Under-trading stores
• Unprofitable stores
• Under-trading malls
• Stores that must close
• Distressed malls, that may need to close 

What is left behind if a property solutioneering-orientation is not adopted:

• Dead space /dark mall when retailers close and leave in this economy, there is NO chance that retailer vacancies will be reletting
• BIG-box retailers consume deep space; this is the least likely space to be reletting
• when larger retailers relinquish space
• Lower footfall, lower conversions, less profitable stores; all these lead to an
• underperforming mall! 

Solutioneering through applied repurposing: 

• Consider using this unlet / vacant space PLUS related / adjacent common area for reletting and reuse; re-purpose the space! Consuming common areas means reducing common area maintenance/ops costs and making the overall property more efficient (ratio: GLA vs non-GLA)
• Develop a non-retail-specific strategic letting plan (“SLP”), oriented towards businesses that attract footfall as Storage,  eCommerce Fulfilment Centres, Medical suits / clinic / day-hospital, Municipal services, Educational, Offices, F&B, Urban Farm and others . . . (the imagination boggles)
• Develop an SLP for the property and share this with key ‘anchor tenants’. Seek out novel and new tenants and businesses. Apply PropTech innovations and advance the interests of the richness of technology into the operations and customer-facing areas  

Re-purposing results: 

• More efficient malls
• Higher net operating rentals
• Operating costs / CAM recovered from more lettable space
• Greater diversity in the letting and offering to customers
• Higher footfall for all retailers
• Better quality metrics that can be applied and trends shared quickly to all tenants
• Properties which enjoy higher valuations