Tenant Portfolio Selection for Managing a Shopping Center

Abstract

In managing shopping centers, Kariya et al. (2005) formulate an analytical framework to optimize the net present value (NPV) of profit from each individual tenant with two control measures of fixed and variable rent linked to tenant sales or tenant replacement rules. Here, the framework is extended to a two-tenant case, where the sales growth rates of the new and old tenants are correlated in replacement. Hence, like the portfolio theory in finance, the combined NPV of the correlated cashflows of two tenants with the two control measures is optimized. To select a new tenant for a specific space, the sales correlation data of leaving and remaining tenants in proximity to the space can be used for optimization. Our simulation results show that it is better to select a new tenant whose predicted sales growth rate is high and has a largely negative correlation with that of the local tenants.