The Retail Leasing in Pakistan
It is On the Rise!
What is Retail Leasing in Pakistan
Retail leasing in Pakistan is about renting a space for your shop or outlet.
It may be some restaurant, coffee shop, apparel business, or electronics store.
No business can operate without a commercial place, whether it is owned or rented.
In Pakistan, we usually use the word ‘renting’ instead of ‘leasing’.
However, as per the international terminology, the word ‘leasing’ is mostly used, which is equivalent of ‘renting’. For ease here, I will stick with the word ‘Retail Leasing’ instead of ‘Retail Renting’.
Retail Leasing During and After COVID
Retail Leasing in Pakistan is on the rise after the COVID-19. As we all know, it was greatly suffered during the last two years of COVID (2019-2020).
The fall out was huge, since many small and medium sized businesses also could not survive and had to pack up and leave, as there were no customers.
Every small, medium and big businesses were forced to change their sales strategy and they were trying to get digital through ecommerce sales.
But everyone was not fully prepared for it, those who were not tech savvy and were more conventional, they suffered the most.
But times are changing again. The fortunate aspect is that the basic human psyche needs the human touch and interaction.
We are all social creatures, it is hard to stay indoors and operate like a machine for a long time. We want to see people, hang around, eat around and get energized.
That is why the mental illnesses also increased during the COVID times.
Now as the times have changed in 2022, for businesses to stay visible is equally important and relevant.
Budget Determination for Retail Leasing in Pakistan
It all starts with the budget of the business, when it comes to retail leasing in Pakistan.
How much space the business may need, and how much rent the business is willing to afford.
For a general rule of educated average, normally, business allocates the percentage of the monthly gross sales for the leasing budget.
As per the industry standards, it usually ranges between 3 – 10%, depending upon which industry you work for and the amount of sales turnover.
Retail Lease Types
Following 3 types are very common for retail leasing in Pakistan.
- Fixed monthly rent – Tenant has to pay only one agreed upon rent every month inclusive of everything but excluding utilities.
- Profit sharing rent – Tenant has to give the percentage of the sales made in a month.
- Hybrid (Fixed + percentage) – There will one fixed base rent + some percentage of the sales.
Retail Leasing Fee & Charges in Pakistan
Please note that following additional charges have to be agreed upon between the tenants and the landlords. Alternatively, they are also called as Lessor (landlord) and Lessee (tenant).
- The base rent
- The common area maintenance charges (CAM) (it is per square foot)
- The utilities
- The taxes
All these four charges are usually on the tenant, which he or she should read in detail.
The Tenancy Agreement or Contract is signed and executed on the Stamp paper.
Property Leasing Consultant / Agent Fee
Please also note that in case if the landlord or tenant has hired an agent to facilitate this retail leasing transaction, then the normal fee for the agent is usually one-month rental commission.
Tough at times, the consultant or dealer may negotiate with half rental commission, but the quality consultants often settle for one-month rental fee for retail leasing in Pakistan.
This retail leasing commission also has to be included in the budget while making the retail leasing planning.
The Factors For Selection of Retail Place
The retail brand versus their customers’ analysis has to be done by the brand management.
If it is an eatery or women clothing, and the price range of the product is low budget or high end expensive brand. Accordingly, the brand has to find the place of its suitability.
The surroundings and demographics also matter for the brand including the following factors.
- The competitors already in the market.
- The location of the store, whether back street or prime location.
- The parking facility around the place.
- The power facility and other amenities within the building.
- The Sidewalks and general footfall from the market.
All these factors play a role for attracting the footfall in the store which converts into the sales.
For the known brand, it may not matter much for the general walk-ins, since they have loyal clientage who may opt to come to the store even if they are residing somewhat farther from the place.
In this matter, brand equity is another factor to consider while selecting the place for retail leasing in Pakistan.
The Landlord & Building Owner Perspective
If the landowner is a mall owner, then there has to be a brand zoning theme in the shopping mall.
The shopping mall leasing may not and should not go for every tom dick and harry. They are usually selective. They have to research about the brand coming to their premises.
Such mall owners want known brands and long term leases. They want to develop sustainable business model and a win-win model for both.
For good brands, the mall owner may be open for negotiation and may provide very attractive deals in order to attract the brand and stay long with them.
Depending upon the size of the mall, whether small, medium and large, the mall owners may have their own preference like eateries, women apparel, shoes, electronics and children. Accordingly, they will hunt and scout for the known brands.
Retail Store Fit Out & Customization Requirements
After the effective execution of the retail leasing contract, the tenant eventually takes over the premises. And some grace period is usually allowed as per the contract to cater for the fit out and place customization period.
The fit out and customization requirements may vary from business to business. It involves interior designing and décor.
Accordingly, based on the theme of the brand, its colors and its intended audience, the brand starts customizing the leased premises according to their tastes.
Sometimes, in the bigger mall setting, such customization also has to be done with the approval of the mall management, since they also have to ensure the standard features in all the retail store in the mall.
It is important to note that interior decoration plays the most important role in attracting the customers. It is consumer psychology game.
The art of retail display involves colors, lighting, background music, textures and patters in your retail designing.
It is about creating an ambiance and special mood, that helps the customers to stay longer inside the store.
Challenges in Retail Leasing in Pakistan
Unlike in foreign countries, retail leasing in Pakistan has many challenges.
The small or medium commercial building owners sometimes may not have the desired vision. They usually do not have any preference for the brand theming and zoning while leasing out.
Their first preference is to sell the shops, and then secondary owners normally rent out to the business owners of their choice. This way, the main building owner loses all the control on the mall management. And this way, any brand, small or big can enter into retail space.
This actually results based on the preference of the owner to recover the money invested on the construction of the building. He may not have the long term vision for the professional mall management.
However, with arrival of major mall brands in Pakistan i.e. Emporium Mall, Packages Mall, Dolmen Mall, now the trend has started changing. They are running the malls on purely retail leasing model just like benchmarked practices in the foreign world.
Summing Up
Retail Leasing in Pakistan is now becoming a specialist area, however there may not be many to find in this area of specialization.
I think, it is a time for diversification for those who may already be working in the property market.
Those who may be interested to learn more can also read another article