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Specialty Services: 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.
There are three
general categories of Retail properties:
1. Shopping
Centers -- 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. 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.
b. A "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.
c. 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.
d. 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.
e. A "convenience
center" is a small cluster of stores along a street, 5,000 - 40,000 square
feet; trade area is immediate neighborhood. May have a convenience market,
laundromat, dry cleaner, etc.
f. 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.
2. 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.
3. Strip Commercial
-- A string of stores in a commercial area with no central leasing, management,
or theme.
Things to consider
before committing to lease or buy a Retail property:
-
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 there adequate parking for customers?
As a buyer of
retail properties, primary concerns should be:
-
Physical condition
of property -- price should be 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
-- 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?
Once you decide to sell or lease office space, a Commercial
Services specialist will assist you every step of the way.
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