Retail Tips

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 tips about buying or leasing these properties:

Shopping Centers

A group of stores catering to a trade area that offers a variety of goods and/or services and on-site parking (the tenant "mix"):

• Super regional center - has three or more major department stores, is often enclosed (mall), is 750,000 to 1 million square feet, and draws from a large trade area of 12 miles or more.
• Regional center - has one or two department stores, a variety of smaller stores, and is larger than 300,000 square feet. It will draw from an eight-mile radius or more.
• 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.
• Neighborhood center - is built around a supermarket and/or drugstore, provides convenience goods and services to a neighborhood, is 30,000 - 100,000 square feet, and draws from a one- to three-mile radius.
• Convenience center - is a small cluster of stores along a street, 5,000 - 40,000 square feet; trade area is the immediate neighborhood. May have a convenience market, laundromat, dry cleaner, etc.
• Specialty center - often has a theme, usually has no anchor tenant, and generally is local in influence. Examples might be home-improvement centers, gift shops, or auto service and sales.

Freestanding 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.

Strip Commercial

A string of stores in a commercial area with no central leasing, management, or theme.

Things to Consider Before Leasing or Buying

• Improvement allowances - 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 there adequate parking for customers?

Primary Concerns for Buyers

• Physical condition of property - Is the price adjusted to reflect the condition of physical plant?

• 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 share in expense increases; physical condition of center is good without deferred maintenance.
• Area growth patterns - Is area gaining or losing population? Will new competition emerge?