Many new commercial landlords are so anxious to fill vacancies that they overlook the fine art of tenant mix. Being intentional about the businesses in your building can pay huge dividends in tenant success and retention but it requires time and patience, especially when most or all of the units are occupied.
Step 1 – Choose a lane
You may already have an idea of the optimal ‘theme’ for your building but it pays to do some research. Getting in at the start of a new trend or industry can mean that you will ride the wave along with your tenants.
Building factors such as amount of available parking, traffic count, pedestrian traffic, etc. should be considered when deciding on the best mix. Also consider tenant growth and floor plan flexibility, you don’t want your tenants to have to move out just when they’re getting successful.
Do you have some existing tenants that you’d like to keep and that work well together? See if your analysis points in a direction that could include those tenants.
Step 2 – Complimentary or Opposite
Often the best mix is a group of complementary businesses – think medical park – but if building resources are limited, other strategies may be preferred. For example, if you have a small amount of parking, businesses that are busy at different times of the day or a mix of commercial and residential could help alleviate parking woes.
Step 3 – Choose an anchor
Most successful multi-unit commercial buildings have an anchor tenant, a business that will attract customers who may also patronize the business of your other tenants. For example, your anchor tenant is a large real estate brokerage like RE/MAX. You can then court other professionals in the real estate space like insurance agents, title companies, real estate attorneys, home inspectors, even a coffee shop. This helps the anchor to offer more service to its clients while bringing potential business to the supporting professionals. Your anchor can even help you recruit professionals with whom it already has a relationship. Hunter Strickland suggests the anchor tenant should “be willing to commit to a longer lease than the rest of your tenants.”
Disadvantages of a complimentary mix
In the above example, you can imagine that if the real estate market experiences a slowdown, your entire building will suffer. The same is true when your mix consists of businesses in any one area. That’s a big reason why a mix of opposites can be appealing – especially a mix of commercial and residential. Naturally not every building can support this type of mix but when feasible, it can be a great hedge against market forces. There are also complimentary mixes that should weather financial storms differently like a high-end dress shop and a consignment clothing store.
Advantages of a complimentary mix
The advantages of a theme-type complex are more than just the rising tide of traffic from your anchor tenant. You and/or your tenants can do joint marketing and promotion, offer reciprocal coupons or savings, plan building-wide events and share mailing lists. Marc Glaser suggests “developing an effective marketing plan which should involve all tenants. This would help to bring more customers and of course more sales.”
Sweeten the pot
In most areas, your building will compete for tenants with similar buildings. What can you do to make your building more appealing? Your anchor tenant can probably make some suggestions. You can also visit the buildings and observe features both present and lacking. Often common area amenities like a tasteful conference room, large atrium, kitchen with full-sized fridge and dishwasher, or reserved parking for each unit can tip the balance in your favor. Coldwell Banker suggests landlords “take the time and invest the funds to make sure that your property and tenant mix significantly exceeds the standards of the competing properties in your community.”
Whether you decide to attract a complimentary or diverse tenant mix, making the decision intentionally should improve your chances of success.