Anchor tenant is the term used to describe a lessee that rents a significant, often the largest, portion of a commercial property.

Anchor tenants are usually large national retailers such as department stores, supermarkets, cinema operators or corporate headquarters of large multi-national corporations with long term leases within a property.

Anchor tenants usually occupy the most space in terms of Gross Leasable Area (GLA) within the property and usually generate a significant amount of human traffic for other tenants within the building.

Due to their sheer size and influence, anchor tenants are usually able to negotiate more favourable lease agreements with the REIT or property manager whose premises they are leasing from when compared to ancillary tenants.

REITs and property managers are well aware that should an anchor tenant vacates its premises, it may not be as easy to find a replacement lessee who is willing to take up the amount of floor space left unoccupied. Besides, floor space that has been configured for niche tenant types, such as cinemas, may not have a ready lessee available immediately if the premises are vacated

In general, the presence of well established anchor tenants is an important indicator of a property’s commercial viability in the long term. Properties with large numbers of anchor tenants usually have long weighted average lease expiry (WALE) and face lower vacancy risks.

This entry is part of REITsWeek's glossary of REITs and real estate investment terms.

By Ridzwan Rahmat

Ridzwan has been analysing REITs and business trusts since 2008, and personally manages a portfolio comprising mainly of SGX-listed REITs. He founded REITsWeek in 2013.