Specialist retail asset managers have increasingly adopted the model of revitalising and repositioning shopping centres. In recent years, more owners have acquired retail assets without sufficient internal resources, as highlighted here by Nick Hilton, Partner, Retail & Leisure.
Whether it’s local authorities looking to use shopping centres as part of wider town centre regeneration plans or banks and insolvency teams inheriting schemes following default, the retail expertise and networks of specialist asset managers are vital.
Equally important are the partnerships between these asset managers and their property management teams in delivering complex and challenging business plans, as the retail sector strives to recover from the pandemic and shift into a new gear.
Effective and collaborative partnerships between asset and property managers are invaluable in reviving lacklustre or struggling assets. These partnerships not only align both parties to deliver a specific business plan but also require them to prepare the assets for sale within a tight timescale.
Here are six areas where we see that collaboration between property managers and asset managers adds value…
1. Net operating income: Crunch the numbers
To maintain net-operating income, property managers enhance rental income, deliver value in service charges, and mitigate costs. Collaborating closely with asset managers, management teams strategically cut costs, optimise rental income and mitigate risks and liabilities.
This focus is never more important than in preparation for sale. This is to make matters as transparent as possible for potential purchasers, ensuring assets are sale-ready.
An owner’s ability to borrow money is often directly linked to a scheme’s NOI. In a world of rising interest rates and limited access to cheap money, effectively managing net-operating income (NOI) becomes crucial.
2. EPCs: Identify and mitigate future risks
We are actively working with asset managers to identify EPC risks within schemes, where units could potentially become unlettable. Our goal is to find ways to improve the EPC ratings within the overall asset business plan through close collaboration. Starting from April 1st, commercial landlords and agents will face additional restrictions under the Minimum Energy Efficiency Standards (MEES). Leasing properties with sub-standard energy performance certificates (EPC) rated ‘F’ or ‘G’ will be considered unlawful. Landlords will be compelled to undertake improvement works to meet the required standards. After April 1st, regulations were amended with a future target in mind. By 2030, commercial properties will be required to achieve an EPC rating of ‘B’. In the interim, there is a target to reach an EPC rating of ‘C’ by 2027. These changes reflect the increasing focus on energy efficiency and sustainability in the built environment.
Meeting these restrictions is crucial in the short term for successful property lettings. However, the long-term benefits extend beyond occupancy rates. Complying with these regulations will improve energy efficiency, leading to cost reductions. Additionally, they will also be helping to establish a pathway for the asset towards Net Zero.
3. Leasing: Deliver and facilitate plans
New lettings and lease renewals are the backbone of asset managers’ operations. Our role is to assist them in expediting and simplifying the process to facilitate successful deals. We focus on streamlining procedures and accelerating timelines to ensure efficient and seamless transactions for asset managers.
To facilitate smooth leasing transactions and support retailers in moving into schemes seamlessly, property managers can employ simple yet effective strategies. These include:
- Maintaining transparent service charge documentation.
- Promptly addressing legal inquiries.
- Clarifying onsite procedures.
- Cultivating a welcoming environment with accessible staff.
These measures ensure transparency, efficiency, and a positive experience for all parties involved.
Our building consultancy teams have an equally vital role to play here. Property managers play a pivotal role in delivering the asset manager’s leasing plans. They achieve this by reconfiguring old units for modern trading formats and collaborating with retailers to ensure compliance with centre guidelines.
4. Social impact: Provide value for the community
Putting retail schemes at the heart of their communities is now more important than ever. Community-led retail schemes have the opportunity to deliver effective social value initiatives. They positively impact the perception and role of the scheme within their neighbourhood. In this way, retail schemes are visited more often and valued more highly within their local community. In addition, these strategies contribute to the prosperity of the surrounding area by supporting local operators, suppliers, charities and community groups.
At a number of our retail schemes, our teams have worked in partnership with asset managers to deliver positive social impact programmes that have won the hearts and minds of local communities. These strategies not only play into the ESG goals of investors, but can also be instrumental in the repositioning of assets where planning consent is required.
5. Onsite teams: Install people who care
Of course, none of this would be possible without highly skilled and dedicated onsite teams. They live and breathe the assets in which they work. Since they are on the ground at the property, these specialists are constantly in touch with retailers. They are keeping on top of their needs and helping their trading performance. For example, during Covid, as a result of our close relationship with retailers, we were able to continue to ensure reliable rent collection from many struggling businesses.
6. Improve investment performance: Grasp the business plan
Today’s retail investors acquire assets for a variety of reasons and each scheme will have its own unique set of opportunities and challenges that they are trying to exploit. Gone are the days of passively owning a scheme for a steady rental income. By bringing a well-balanced blend of experience and skill, along with market knowledge, commercially-savvy property managers support asset managers – and ultimately owners – in improving investment performance. In today’s market, the aggressive timeframes often involved for asset managers to deliver their plans to reposition, repurpose and possibly sell an asset, means that property managers have to be able work at the pace required.
It’s the property manager’s understanding and ability to positively contribute to the delivery of the business plan that makes the relationship with specialist asset managers so effective. With additional expertise from other specialist teams including Building Consultancy, ESG and Activate, our placemaking and destination marketing team, we typically play a central role in the repositioning of assets, with sale as the end goal.
While property managers and asset managers play very different roles, the most successful retail owners know that a true partnership between the two, where both are aligned and working to the same objectives is the best way to deliver their business plan effectively.
Read more about Workman’s Retail & Leisure Services.