Retail properties can range from a single, one-tenant building to over a million square feet of assorted shops that display goods or sell services to the public. Explore the three types of retail properties and some tips about buying or leasing these properties:
A group of stores catering to a trade area, which offers a variety of goods and/or services and on-site parking (the tenant "mix"):
- A "super regional center" has three or more major department stores, is often enclosed (mall), is 750,000 to one million square feet, and draws from a large trade area of 12 miles or more.
- A "regional center" has one or two department stores, a variety of smaller stores, and is larger than 300,000 square feet. It draws from an eight mile radius or more.
- A "community center" usually has a supermarket, junior department store, and a variety store, is larger than 100,000 square feet, and draws from a three to five mile radius.
- A "neighborhood center" is built around a supermarket and/or drugstore, provides convenience goods and services to a neighborhood, is between 30,000 - 100,000 square feet, and draws from a one to three mile radius.
- A "convenience center" is a small cluster of stores along a street, is 5,000 - 40,000 square feet, and draws from the immediate neighborhood. Typical business include convenience markets, laundromats, dry cleaners, etc.
- A "specialty center" often has a theme, usually has no anchor tenant, and generally is local in impact. Examples might be home improvement centers, gift shops, or auto service and sales.
Free Standing Store:
One commercial building meant to be occupied by a single user. It is typically found near major shopping centers on major routes, and fills a specific need in the area.
A string of stores in a commercial area with no central leasing, management, or theme.
Things to Consider Before Leasing or Buying:
- Improvement allowances -- what the landlord budgets for carpeting, tile, bathrooms, etc.; additions to basic leased area. This allowance is sometimes called "T.I." (tenant improvements).
- Location -- traffic counts, ease of access to store, convenience to shoppers
- Cost of occupancy -- expense pass-through, improvements, insurance, etc.
- Overall draw of customers to center -- does center have a steady stream of shoppers?
- Demographics -- are goods or services attractive to people in the trade area?
- Effectiveness of management -- does the landlord respond to complaints or suggestions?
- Parking availability -- is parking supply adequate enough to meet customer needs?
Primary Concerns for Buyers
- Physical condition of property -- price should be adjusted to reflect the condition of physical building.
- Net income generated by leases -- what is left after expenses of operation are paid?
- Occupancy level and tenant mix -- are there vacant ("dark") spaces;? Are tenants attracting shoppers?
- Stability of tenants -- What is the turnover rate? How long have tenants occupied the center?
- Upside potential in income -- are rents under market? Do leases escalate to keep pace with inflation?
- Protection from large increases in operating expenses -- tenants should share in expense increases. The physical condition of the center should be good without deferred maintenance.
- Area growth patterns -- is area gaining or losing population? Will new competition emerge?