How can ancillary revenues benefit retail real estate?

Ancillary revenue

Are you maximizing your ancillary revenue opportunities? If not… You should be. Ancillary revenue streams are in all sales and service-based industries. The benefit is clear – they boost turn over. But they also create a better experience for customers.

Ancillary revenue is any type of revenue that supplements your business’s main offering. Most shopping centers already incorporate forms of ancillary revenue. Pop-ups are a core stream of ancillary revenue for them, but could they take it a step further?

“For some airlines, ancillary revenue makes up to 20-50% of their total revenue.”

The travel and hospitality industry leads by example on ancillary revenue strategy. They are known for cashing in on extra revenue streams. Airlines and hotels have been offering enticing service tidbits to accompany their main offering for years. From seat reservations, room upgrades, and cross-selling services.

Ancillary revenue is so effective, that for some airlines it makes up to 20-50% of their total revenue. There is a thing or two to learn by taking a look at the travel and hospitality industry.

Space as a service

At face value, specialty leasing is not that different from the hotel industry. Tenants lease spaces to fulfill one or more of their needs. In other words, what you are offering them, is a service. At the moment, this service remains black and white. The tenant rents a space, often an empty box. The property manager receives the income, and then the tenant can use their empty space as they please. This is a simple transaction for property managers, but it could go deeper.

Consider for a moment what a tenant has to put into a pop-up. In some cases, spaces need renovations, and they often require Wi-Fi installation and furnishings. Once everything is up and running, there are also logistics, storage and staffing… The list goes on. From here, you start to see why the short-term leasing experience can be challenging. What is missing, in this scenario, is the next level of service.

There is a missed chance to create side offerings for short-term leases. Service packages could be useful for brands who are going into brick-and-mortar for the first time. The packages could have different levels and compromise of different services and infrastructures.

These extra services do not have to be extreme, they can be anything that suits a business’s capabilities. Packages could compromise of furniture rental, POS software, Wi-Fi, staffing, signage, storage or logistics.

Some of these services might need some upfront investment. But you don’t have to provide these services yourself. Approaching businesses that can complement your packages can do a lot of the leg work out for you. Your new business partner benefits from more business and tenants are happy with the extra service.

Make ancillary revenue work for you

It might seem that ancillary revenue needs a lot of work for minimal return. But revenue should not need to be the biggest drive for ancillary revenue strategies. Something often overlooked, is what ancillary offerings bring to customers.

The small extras that Hotels offer alongside room bookings, are there to enhance the customer’s experience. This creates a better sentiment toward the hotel and contribute to greater customer retention.

This strategy can be applied to short-term leasing. The scenarios are different, but the effect is the same. Added service packages are convenient for retail tenants. Not only that, it creates a dynamic of shared success. Further, developing the business relationship between property manager and tenant. It heightens the chance of repeat business and strengthens your company’s brand image.

Ancillary revenues are a financial lifeline

Most importantly, ancillary revenue can act as a financial lifeline. For years, hotels have used ancillary revenues to help them survive low-demand periods. Hotel revenue statistics from CBRE show that in 2020, many hotels were able to mitigate drastic revenue declines thanks to their ancillary revenue streams. In August 2020, some hotels actually saw a 26% increase in miscellaneous income, despite the bleak circumstances of the pandemic.

“Hotels were able to mitigate drastic revenue declines thanks to their ancillary revenue streams.”

There is a saying – do not put all your eggs in one basket. Diversifying revenue streams help you to steer through the rough and make it out the other side. Receiving extra income from each short-term lease can help to keep things afloat when times are tough. Even if there are few deals on the table, ancillary revenues can soften the financial blow.

The takeaway

Pop-ups are a valuable form of ancillary revenue for shopping centers. The implementation of rent packages has increased benefits. It provides tenants with added support. Deepening tenant and property manager relationships that promote repeat business.

Ancillary revenue is useful for mitigating financial down periods. Particularly when markets are low and business is slow. The hotel industry uses ancillary revenue strategies effectively. This can help retail property managers in developing their own strategies. There are many opportunities to cash in on service packages that work to build your business’s reputation, increase customer retention, and uplift your profits.

 

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