July 30, 2013
I’ve been getting queries on how much is the typical rent in a shopping mall. That’s a very tough questions because simply, it varies based on market forces and location. Today we’re going to explore more on the rental rates of kiosks and retail spaces in shopping malls and the key variables, as well as actual examples in Singapore.
At the end, I will also provide considerations you, as a retail owner, should consider before making a commitment. These local considerations however, can be used all over the world to gauge what is a suitable rent for your business. My experience is mostly based on F&B retail.
The first and most important factor affecting the asking rent in a shopping mall, is the traffic the mall gets. Simply put, a 5 million monthly traffic walk-in mall is going to command a higher rent than a 1.5 million monthly traffic mall.
However, you have to note the size of the comparing malls and the traffic per area as well. The 5 million traffic mall might be 3 times bigger in area space and might actually work out to yield the same amount of footfall per square feet as the smaller shopping mall.
Simply take the total monthly traffic divided by the total area of the mall to get a fairer comparison figure- the traffic/Square Feet or Square Meter.
More established mall managements will also tend to charge more with Advertising and Promotions support as well as maintenance costs. Although not as important as traffic, it is still useful to know that having a management that supports its tenants is worthwhile paying for, as they will initiate marketing campaigns to promote their mall when times are bad, or have efficient security systems in place to prevent any theft or pranks.
For example, most mall under Capitamall will have asking pricing of at least SGD $30 Per Square Feet (PSF) and above, partly because of their brand and their confidence to bring the mall to a higher performance level.
Where the potential spot is in the mall is also very critical in pricing. Retail outlets near the entrance or at level 1 of the mall tend to command higher prices. F&B spots tend to be the most expensive at the basement where the mall structures the entire floor to concentrate most of the F&B kiosks all at the same level. This prompts people to visit the basement with the intention to buy food.
As a rule of thumb, the highest micro traffic hotspots in the shopping mall command higher prices, while the hard to find corners or spots near the toilets will see a lower asking rent. Other factors also include whether the escalator/lift is nearby, al fresco area (which is cheaper) and whether you are situated right beside a big anchor tenant.
In shopping malls, the bigger the space you take up, the cheaper the rent per square feet is (note: not overall rent, but per area). A typical 150-200 SQF kiosk might cost $40/psf, but in the same area if you take a 2000 SQF feet retail restaurant outlet instead, it might cost you $20/PSF. The net amount is higher still obviously, but you get more value per leased area.
Shops that have bigger frontage, like a corner stall where you can get double side frontage, also command slightly higher rent. Horizontal and wide stores also give you better frontage rather than small a front and deep stores, which can be cheaper.
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I can assure you McDonalds is getting a way better deal than you are. Every single shopping mall pretty much MUST have a McDonalds, so Macs has the bargaining power to bring down the rent to some disgustingly absurd number. Well, don’t think about achieving this feet, but yes your brand in relation to the mall’s brand matters.
If you have built a strong and renown brand, shopping malls will look for you and invite you in. When this happens, you are going to get a much better asking rate than a poor brand, because having your retail shop boosts the mall’s branding as well as brings them traffic that they otherwise would have lost. The more a mall wants to bring you in, the lower the asking rent will be. Most malls however, still have a minimum authorized rent which they will flat out refuse anyone if you go below it.
This is a big hurdle for many small startup companies, as malls will unlikely let a new brand in unless you pay a premium, or you figure out a way to get your reputation up.
Other than having a strong brand, it’s largely also competing with other potential tenants who want to go into a mall. The highly popular and crowded malls will most of the time have many potential tenants all bidding for a single spot. This drives up the price due to higher demand than supply.
A shopping mall also considers it’s current tenant, and how much they are charging. This will be their baseline for how much rental to charge, as previously someone has already paid this price. It is quite unlikely shopping malls will go any lower than the previous rental rate unless something like an economic depression happens. Many malls would rather have a lot empty, than rent out at a discount, for strategic purposes.
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You have to consider the size that you are looking for. What is the minimum ideal size (for equipment, storage) and do you really need the extra space? Find the optimum revenue/SQF, as having a bigger space might not necessarily increase your sales.
If you are selling a low priced volume based product, don’t scrimp on rent. Having a good location with traffic is infinitely more worth it than a cheap location with no traffic, thinking you can attract people from all over the country. It is way easier to have traffic right outside your door. That said, town shopping malls tend to have a lot of people and are very costly, but they might not be the best choice.
Town malls tend to be a lot more expensive, but buying power is higher in town. If you product is however not very highly priced, don’t consider an outlet in town yet. Most business owners actually open stores in town more for branding purposes, instead of making money. Some even tolerate losses for the brand, and you have to ask whether you are in a position to make losses, while the other outlets make money. The real profit comes from the suburban areas, whereas town outlets bring them good branding.
Orchard Town area: $35-$60/SQF (313 Somerset 1st floor with front facing the main road was asking $100/psf. Still varies a lot.)
Suburban mall area: $12-$35/SQF (some suburban areas might ask town rent prices too, depending on traffic in the area)
Niche Malls: $10-$20/SQF (like technology malls, or out skirt malls)
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Related Guide: Guide to Leasing a Retail Outlet