Landlord-Anchor tenant relationship in the spotlight

Anchor tenants – like major department stores and big name brands – have long been used to pull the crowds into shopping malls.

But against a more challenging retail landscape, industry analysts told Channel NewsAsia that this strategy may no longer have the same draw.

The landlord-anchor tenant relationship is also coming under the spotlight, amid an ongoing rental dispute between landlord Ngee Ann Development and department store Takashimaya, its long-time anchor tenant at Ngee Ann City shopping centre.

Last week, both parties – which have been in a business partnership for more than 20 years – found themselves in court over a rental agreement.

Ngee Ann City’s landlord, Ngee Ann Development, had proposed to raise the department store’s rent to S$19.83 per square foot, up from S$8.78 per square foot. This was in 2013, after Takashimaya renewed its lease for another 10 years.

While it is possible for anchor tenants to part ways following private negotiations, a property analyst Channel NewsAsia spoke to said it is unlikely to happen in this case.

“The brand Takashimaya has stayed very well and long-lasting because of its strong customer base and international standing. And its positioning – where Ngee Ann City is – is excellent, and you can’t find a replacement location like that,” said Chestertons Managing Director Donald Han.

“Over the years, the Ngee Ann City location has built itself as the premier shopping spot along the Orchard Road belt… Because of that it’s a symbiotic relationship that both want each other to co-exist.”

The anchor tenant model is a traditional one used by landlords, where the anchor tenant’s brand is meant to draw crowds in and set the tone for that mall.

“Wherever they go, footfall traffic will follow. They also bring tenants, which are related to that kind of business, to surround them. So it creates an easier path for landlords to attract other tenants who want to be near the anchor tenant,” said Mr Han.

But one size may no longer fit all.

“For malls that are less well-located, are currently having problems retaining their tenants, or experiencing weak shopper traffic – I believe they will still benefit from having a good anchor. But having said that, having an anchor for the sake of it is really not the answer,” said Sulian Tan-Wijaya, Executive Director, Retail and Lifestyle at Savills Singapore.

“Because if it’s not a strong anchor who can bring in the traffic, it doesn’t make financial sense for the mall – because they pay very low rents.”

Ms Tan-Wijaya added that some malls that lose anchor tenants may not replace them, choosing instead to fill their retail space with a more adventurous mix of tenants. This could increase rental revenue.

Malls like Ion Orchard, for example, have eschewed the model and opted not to have an anchor tenant. And it has appeared to work in its favour, helped by the mall’s central location and proximity to an MRT station.

Newer malls like Somerset 313, Mandarin Gallery and Scotts Square also do not have anchor tenants due to their smaller size.

Source : Channel NewsAsia – 3 Apr 2016

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