We look at the importance of an anchor tenant in a commercial real estate project and the peculiarities of a lease between such a tenant and the landlord
The success of a commercial project depends on a host of factors, such as location, construction quality and amenities. At the same time, the anchor tenant also plays a huge role, in the success of a commercial project. Getting an anchor tenant is important for any commercial project, in order to lure other tenants and thus, make the project a success. The anchor tenant brings immense value to a project and increases the attraction of the property, in the eyes of other prospective tenants.
Who is an anchor tenant?
An anchor tenant in a mall can be a departmental store, especially that of a global retail chain. An anchor tenant in an office building can be a Fortune 500 corporate with large operations. The anchor tenant in an office building can be a noteworthy bank.
An anchor store is also referred to as a ‘draw tenant’ or ‘key tenant’. Some examples in the Indian context, include Big Bazaar, Shoppers Stop, etc. Such stores can attract large footfalls and this has a ripple effect on the restaurants, coffee shops, entertainment outlets, etc., in the commercial building. This, in turn, draws other tenants to the mall or the building, as they will feel assured of good footfalls in the case of malls and better perceived image in the case of an office building. An anchor tenant is usually finalised and a lease agreement is signed with it by the landlord, before the commencement of the construction of the building.
One way to find an anchor tenant, is through classified listings on real estate portals. Landlords can also search for prospective tenants, by contacting companies (for example, large retail chains) directly and asking them about their expansion plans in the city and the locality where the commercial project is coming up.
Following are some of the aspects of signing an anchor tenant in a project
1. Lower rent
An anchor tenant demands and often gets to pay a lower rent, as compared to the prevailing rent in the mall or building. A mall owner typically offers a 5-10% lower rent to an anchor tenant. This is because the anchor store has a huge spin-off effect on business in the building. This is especially true for a mall, where the anchor tenant will bring more business for other stores and will also increase sales in food and beverage counters of the mall. Certain international and established retail chains can bargain for even higher discounts than 5-10%. It is up to the mall owner to see how much benefit the anchor tenant will bring to ancillary tenants and result in the overall success of the mall and accordingly, decide on the quantum of rental discount.
2. Specific space requirement
Usually, the anchor tenant will specify the kind of space and construction that is required by it. If the anchor tenant is signed even before the construction of the mall or the building has started, then, the property can be developed accordingly. Otherwise, the landlord may need to make renovations to suit the needs of the anchor tenant. As the anchor tenant will have its own specific requirement, vis-à-vis construction and space, it is better for the landlord to sign a long-term lease deed with the tenant.
3. Car parking
Adequate car parking arrangements must be made by the landlord, given the fact that the anchor tenant is expected to bring sizeable footfalls.