Retail Commercial Real Estate
The purpose of retail properties is to serve their customer base by marketing and selling goods and services. The retail properties could vary in their configuration and degree of the tenant improvements inside the store, depending on the type of the customer served and the kind of shopping experience that the customer expects.
Over the last ten years, online stores have carved their own niche in the customer shopping experience, but the numbers behind the brick-and-mortar stores remain strong. According to the International Council of Shopping Centers, the two kinds of shopping have come to co-exists and supplement each other.
Why own retail?
Retail is the most sophisticated property type, and requires understanding of the industry practices, as well as proper risk management. When done right, with the right type of tenant and properly executed Lease Agreement, retail investment could be as low-key maintenance and as cash flow stable, as owning a bond.
The first steps to consider in acquiring any type of real estate are investor’s risk tolerate, goal of the investment (cash flows versus appreciation) and the strength of one’s existing portfolio.
When investing in retail properties specifically, considerations include:
- Tenant’s use
- Synergy between this tenant and the neighboring stores
- Tenant’s strength and the owner’s cash flows
- Debt coverage (if any)
- Term of the lease
- Market direction
- Current rent and CAM charges versus projected rents
Which type of retail to own?
Any freestanding store, with single or multiple tenants. This type of retail is often developed on an infill basis, to fit the existing developments and to satisfy an under-served need. Larger stores, like freestanding Target or Walmart are referred to as the “big boxes”.
This type of properties is developed based on the local city’s business development master plan, and follows strict rules for zoning, signage and parking. Typically, a narrow trade area with variety of services.
Neighborhood shopping centers are developed to satisfy the neighborhood’s needs for day-to-day items and serve the area between one to five miles radius. Neighborhood centers usually include supermarkets and pharmacy stores as their anchors and can range in the size from 60,000 to 200,000 square feet.
Community Shopping Center is larger than the neighborhood shopping center, anywhere between 250,000 to 500,000 square feet and offers a wider variety of goods and services. Tenants sell apparel, home-improvement items, furniture and electronics. Community shopping center could include a neighborhood shopping center.
Is typically an enclosed mall with inward orientation of the stores, with national and regional tenants selling primarily apparel. 500,000 square feet and up, and can draw customers from 100 plus mile radius.
Similar to the Regional center, Super Regional Center draws customers from an even wider area radius due to its larger size, more anchor tenants and larger selection of merchandise.
Power center includes large retailers, stores that are considered “category killers”.
Catering to high-income customers, life-style malls attract clients with their exquisite décor, lush landscaping and selection of upscale shops and boutiques. Usually do not need an anchor, although restaurants and movie theatres could serve an anchor’s role in attracting visitors.
These centers consist mostly of outlet stores, selling discounted merchandise. These centers do not need an anchor, and usually feature large outdoor parking areas and food courts.