That creativity takes shape in a number of ways: physical changes, management fine-tuning, specialty leasing, alternative revenue sources and so forth. These measures are designed to help reinvent the notion of what retail centers are, and have historically been, at traditional, enclosed malls.  With the recent surge of open-air developments, we are seeing many of these tactics implemented in the new product type -- all in the name of increasing NOI. 

As we cope with economic volatility, here are seven suggestions on how to increase NOI and the internal rate of return from all types of retail properties, as trimming costs and finding new revenue sources will be key to success in the future:

1. Grow Up. Or vertical. Either way this is an opportunity to enhance your site by adding a new component, whether it is additional retail or a mixed-use element such as a hotel or office space.  Take a look at the physical land and parking lots around your property. If the site is ideally located, could you add value with a redevelopment? If so, you’d be well advised to look at the opportunities for developing obsolete or inefficient space.  A few examples include: 

• In Roseville, Minnesota, Jones Lang LaSalle partnered with Morgan Stanley to renovate Rosedale Center, a 1.2 million-square-foot regional center.  In 2007, a 180,000-square-foot lifestyle component was unveiled at the enclosed mall. This lifestyle component replaced an underperforming anchor store.  New dining, retail and entertainment options such as a 14-screen AMC movie theatre, Granit City Food and Brewery, Williams Sonoma, Ann Taylor Loft and Talbot were added. 

• In Miami, TIAA CREF and Flagler Development have partnered with Jones Lang LaSalle to redevelop a prime retail site that was a power center and small enclosed mall.  Located around an existing lake, the power center was renovated and retenanted and the enclosed portion of the mall has been demolished to make room for a lifestyle center.  Once complete, the new property will be approximately 760,000 square feet of better-utilized space.

The Urban Land Institute said it best in a publication released in 2006: “The old rules of mall development are breaking down rapidly as developers rethink what the mall could be. Their emphatic conclusion is that the age of the cookie-cutter mall is over.”

2. Make Leasing a Priority.  The International Council of Shopping Centers forecasts that 2008 store closings could reach 5,770, up from 4,603 in 2007, a 25% increase in one year.  This year’s total could be the highest number of closures since 2004. Already this year, retailers such as Sharper Image and Wilsons Leather have announced dozens of store closings.  Now is the time to make sure you have a strong and well-connected leasing staff that can prioritize.  Experienced leasing agents know that keeping a tenant is much easier than finding a new one.  Today’s circumstances demand that you approach prospective tenants, not the other way around.

Additionally, as mainstream and national retailers slow their growth, brokers should identify temporary tenants such as local or regional merchants that can add significant bottom line revenue.  What was once a concept solely used by enclosed malls is now spilling over to open-air centers and is proving to be a strong source of additional revenue.  Open-air owners are using vacant in-line space, outdoor RMU’s, parking lots and rooftops for temporary tenants.  For example, pumpkin patches, holiday tree farms, firework stands and even rooftop antennas and cell-phone towers can add additional unbudgeted income. 

Experienced brokers will know how to merchandise the centers with retailers that complement, not compete with each other.  Competing retailers tend to cannibalize each other, leaving the center with another vacancy. 

With the anticipated closings and retailers expecting to open fewer stores over the next two years, leasing agents will be under increasing pressure to keep occupancy rates stable. 

3. Stray from the ordinary. When the Mall of America put an amusement park in the middle of its mall, people thought they were crazy.  Not the case, as we all learned.  Non-traditional concepts such as theme parks, medical spas, fitness centers and even sports venues are increasingly featuring in retail settings.  In fact, according to the International Medical Spa Association, approximately 50 medical spas currently operate at malls around the country, compared with practically none just four years ago.

As more and more consolidation occurs in the industry it will be increasingly important to think creatively and search for out-of-the-ordinary venues that draw crowds that like to shop. 

4. Weigh the scale.  Large managers with multiple skills and a variety of services have an edge when it comes to reducing expenses by leveraging their portfolio.  A strong, national property manager can help you achieve economies of scale by hammering out deals with vendors for products and services. This one-stop-shop approach can yield significant cost savings.

5. Explore Nontraditional Revenue Streams. Consumer giants such as Starbucks and Procter & Gamble have gone beyond the traditional marketing vehicles to spread their branding messages. They are allocating a greater percentage of advertising dollars to experiential marketing – an emerging trend with the ability to reach, engage and make relevant connections with consumers.  More and more companies are turning to retail properties to activate these experiential programs.

For example, transportation and retail hub Grand Central Terminal has recently conducted experiential campaigns with companies such as Diamond Trading Company, Visa, Panasonic and National Geographic.  All of these companies have capitalized on the experiential marketing trend serving as signature sponsors of key events resulting in significant revenues for Grand Central Terminal. 

The Jones Lang LaSalle-managed Hanover Mall in Hanover, MA recently secured 20 environmentally friendly companies like Unico and Clean Harbours to promote “Green” practices through an on-site event. Companies pay a sponsorship or site fees for access to the hundreds of thousands of consumers who visit retail and office venues each day. 

Spending on all sponsorships revenue by North American companies is expected to rise 12.6 percent this year to $16.78 billion, according to the IEG Sponsorship Report. This marks the sixth consecutive year that the growth rate will be higher than the previous year and the biggest rise since 2000, according to IEG’s industry forecast. Bottom line: don’t let the sponsorship train pass you by.

Among the avenues for tapping non-traditional revenue dollars are:

• Offering product launches or sampling inside or outside a retail center - recently Jones Lang LaSalle worked with brand marketers for both Maybelline and Kraft to host demonstrations and product sampling at a number of its malls, open-air centers and office buildings.

• Marketing to the captive audience in a center’s food court by sponsoring WiFi, scattering table tents, using table top graphics and signage throughout. 

• Allowing sponsors, such as hospitals, to buy naming rights for play areas or other amenities within a retail center.  At Westgate Mall in Amarillo, Texas, Northwest Texas Healthcare wanted to increase community awareness, encourage involvement in the hospital and further differentiate themselves from their local competitor. Sponsoring the soft play area at the property created a perfect method to achieve their goals. Multi-year deals such as this can generate revenues well into six figures.

• Setting up automobile test drives in a parking lot, a simple auto display or signing up an auto dealer to sponsor a center’s valet service - Lincoln Mercury currently has a multi-year, six-figure relationship as the exclusive auto partner at Atlantic Station in Atlanta, GA. The success of the partnership has been remarkable.  By utilizing Atlantic Station as a marketing medium in the first year of the program alone, Lincoln-Mercury’s market share in Atlanta had grown by 12%.

• Looking at your centers through the eyes of an advertiser.  Floors, doors, walls, table tops, even stairways have value.  This inventory becomes “media space” viewed by daily consumers who are already pre-disposed to spend in retail environments.  Placing advertisers’ logos or ads in any of these locations positions brands literally at the point of purchase.  Recently, Verizon used floor graphics, overhead banners and oversized stand up banners; and State Farm Insurance took advantage of floor graphics at retail locations across the country to promote their new products. Retailers also see value in on-site marketing and advertising.  As part of a grand opening plan, Crazy 8 - Gymboree's newest concept – placed floor decals strategically throughout Serramonte Center just outside of San Francisco in Daly City to drive traffic to their new location.

• Giving up exterior space to sponsors. If your retail property is near a busy highway or a major destination the walls and other outdoor space could be advertising/marketing gold. 

Creating wallscapes, carving out event venues, sampling locations, vending outlets and seasonal merchandising stands, all serve to enhance revenue as well as enhance the consumers’ experience at your property. 

Regardless of whether you own or manage a 25,000-square-foot strip center or a one million-square-foot, mixed-use town center, now is the time to maximize your property’s earning potential.  Lean on experts and industry specialists to help you realize your center’s impending profit.  With hard work, creative brainstorming and the right team, you can forge new revenue streams for your retail properties.

Michael Longmore is senior vice president of Jones Lang LaSalle and leader of Jones Lang LaSalle Retail’s Open-Air Division.