What is Tenant Mix Planning? A Complete Guide for Mall Owners and Managers

A well-planned tenant mix is the foundation of a successful shopping destination; however, it’s frequently not considered until after the lease targets have been met. When done properly, the shopping centre will create a loyal footfall of shoppers, strong performing tenants, and an increase in asset value. If not done correctly, a shopping centre can have difficulty filling vacant stores and continue declining in relevance, regardless of its location. Within this guide, you will learn the fundamental elements of tenant mix planning, why it is important to both developers and owners of commercial real estate, and strategies for developing a forward-thinking approach versus a reactive approach to tenant mix planning.

Key Takeaway:

Retail category and brand alignment as well as space allocation between tenants to real (versus assumed) demand and tenant mix planning creates a functional retail environment.
A well-planned tenant mix can increase foot traffic, increase dwell time, and generate ongoing revenue while an unplanned tenant mix may increase vacancy rates and lead to tenant attrition.
Tenant mix strategies should be evaluated on a regular basis and be based on comprehensive market research, strict leasing procedures, and continuous performance analysis.

What is Tenant Mix Planning?

Definition and Purpose of Tenant Mix Planning

The process of tenant mix planning refers to the planned selection, placement, and balanced distribution of retail categories in a shopping centre to align their availability with what customers want to buy while providing the centre with its own income potential. In essence, tenant mix planning identifies which retailer will be in which space and the rationale behind this determination.

Why Tenant Mix Matters in Modern Shopping Centres

As shoppers today compare malls to the ease of shopping online and other competing shopping environments, each tenant mix decision affects the degree to which the shopping centre is seen as relevant today (as of the first day of store opening) as well as in five years.

The Importance of Tenant Mix Planning for Mall Success

Enhancing Customer Experience and Convenience

When a shopper can check out multiple items typically found at separate stores in a single shopping trip, that creates a positive shopping experience. This is especially important for grocery, dining, and service retailers, as shoppers will have a tendency to do their shopping expediently rather than walking around to get to their desired store in a centre.

Increasing Foot Traffic and Dwell Time

Once a shopper is drawn to the centre by anchors, having the correct supporting mix extends the shopper’s time in the centre, which benefits the tenant’s bottom line and sales performance.

Supporting Long-Term Revenue Growth

The true value of tenant mix planning becomes apparent when you compare centres during lease renewals; a centre with a balanced category mix typically has greater leverage than a centre that leans toward only one type of category mix.

What Does Tenant Mix Planning Involve?

Understanding Customer Demographics and Shopping Behaviour

The demographics, income distribution, and spending patterns of the surrounding area should be the primary drivers for all category decisions rather than blindly applying historical assumptions that were used in other markets.

Selecting the Right Retail Categories and Brands

Tenant mix planning is bringing the right brand profile of retailers to suit the catchment area of the centre regarding the purchase power of the community and lifestyle aspirations of those living in the catchment area.

Balancing Anchor Tenants and Speciality Stores

Anchor tenants will attract traffic to the centre, and speciality retailers will convert that traffic into differentiation and higher margin. Both need to be located purposefully and not by chance.

Allocating Space Strategically Across the Mall

The configuration of tenants is very important. When similar retail categories are located in close proximity to one another, shoppers will tend to spend longer in store; however, when competing tenants are poorly located, they may negatively affect one another’s sales.

Monitoring Performance and Adjusting the Mix

The development of an appropriate tenant mix is not a one-off activity. Adjustments to the tenant mix need to continually take into account sales density, foot traffic data and lease expiries.

Key Factors to Consider in Tenant Mix Planning

Market Research and Location Analysis

Phil McArthur & Partners base their feasibility studies on real demand signals when making recommendations for categories and brand decisions instead of optimistic forecasts.

Competitive Positioning

Knowledge of centres’ strengths and gaps allows for avoiding duplication (in a category that is over-supplied) whilst also allowing for surfacing a category that is under-supplied to be developed.

Lease Strategy and Occupancy Goals

Leasing terms, rental structures, and tenant covenants should be aligned with the centre’s positioning rather than just being used to fill space quickly.

Future Retail Trends and Consumer Demand

Phil McArthur & Partners and other experienced retail specialists advocate that any strategy of tenant mix development should be based on market data rather than assumptions especially when it comes to F&B, entertainment and service categories that are becoming increasingly important to regional centres.

Advantages of a Proper Tenant Mix Planning Strategy

Higher Occupancy Rates

High-quality co-tenancy synergies help attract good quality customers who will continue to use your business and help develop an ongoing relationship where they will return regularly to your centre.

Improved Customer Retention

By providing customers with a consistent selection of products/services across different categories within the shopping centre, they become used to visiting the shopping centre repetitively.

Stronger Retailer Performance

Good adjacencies/categories between the businesses will offer each individual tenant access to foot traffic on a shared basis and support customers’ cross-shop purchasing habits.

Increased Asset Value and Investment Returns

In addition, using an effective tenant mix planning strategy will add value to the total value of an asset and increase its attractiveness to investors when it comes time for them to sell or refinance that asset.

Common Tenant Mix Planning Mistakes to Avoid

Over-Reliance on a Single Retail Category

The centre is vulnerable to industry-specific downturns when one industry (fashion, electronics, etc.) experiences concentration risk.

Ignoring Customer Preferences

It is common for decision-makers to base decisions on what worked in other cities rather than make use of the catchment data of their local area, which may result in suboptimal performance.

Poor Placement of Key Tenants

If anchors and high-traffic categories are for some reason out of place within a centre, it can lead to underutilisation of entire wings of the centre.

Failing to Review and Update the Tenant Mix

Long periods between reviews of tenant compositions result in tenant compositions becoming misaligned with demographic changes and the associated evolution of consumer behaviours.

How Phil McArthur & Partners Supports Effective Tenant Mix Planning

Retail Market Analysis and Feasibility Studies

Phil McArthur & Partners offers advice and assistance on how to understand what types of businesses should be in a particular shopping centre based on evidence. Our services include conducting market research and feasibility studies and facilitating the retail development planning process, in order to generate an information base upon which informed category decisions can be based.

Strategic Leasing and Tenant Placement

Our retail leasing services and concept design reviews illustrate how we will ensure the matching of the appropriate brands to the demographics of the catchment and relative location of the centre.

Ongoing Asset Performance Optimisation

The 150+ years of collective global experience and their extensive experience developing 200+ projects in 30+ countries mean that Phil McArthur & Partners are qualified to assist clients through each phase of their project, from initial feasibility studies through to operating mall reviews and turnaround strategies in the GCC, MENA and beyond.

Conclusion

Planning tenant mix is an ongoing process. As a result, it is an intelligence-based discipline that continues to play a key role in the continuing success or demise of any retail destination. Developers and asset owners that think of tenant mix planning as a continuing, data-driven exercise put their centres in a better position to generate sustainable commercial returns.

FAQS

What is a tenant mix planning strategy in a shopping mall?

The methodical selection and positioning of different retail categories/brands that suit consumer demand and business objectives.

Why is the importance of tenant mix planning critical for mall owners?

It has an impact on both foot traffic, time spent in stores, stores’ success, and the value of the asset.

What does tenant mix planning involve when developing a new retail centre?

Demographic analysis and research; category selection; anchor/speciality/F+B balance; space allocation; review of performance on a continuous basis.

What are the main advantages of a proper tenant mix planning approach?

Occupancy, increased customer retention, greater retailer sales, and improved asset value.

How often should mall owners review their tenant mix planning strategy?

Annually, with increased monitoring during lease renewal periods and shifts in either the demographics of the catchment area or competition.