Shopping Center – Strategic Factors

The success of retail investment property and particularly of the Retail Shopping Center depends on key factors such as:

• the size of local customer markets
• the type of local customer and their spending habits
• the level and nature of median household income in that market area
• local community growth
• the size and location of nearby competing properties, and
• the exposure and access that the subject property has to roads and transportation systems

Real estate investors who own commercial properties should keep an eye on the future of other shopping centers locally and any expansion or changes they experience. The local planning approvals office should be monitored for any pending approvals that change the zoning of properties in the region and any approvals for new development that may affect how the community uses other properties locally.

So why do this? You are trying to protect your cash flow and the future of your property. Without customers, your property’s rent and leases will deteriorate. Market rent levels on your property are supported by clients. You can sue a tenant who is not paying the rent required by a lease, however, the issue is much bigger, and a poorly performing tenant can be the first sign of something much bigger affecting the property in general.

Being sensitive to clients and tenants in a commercial property is an important part of knowing the market. When financial difficulties arise with a tenant, it pays to verify its origins and review the impact on the largest mix of tenants in the property.

Rental property is valuable and must be protected. The rental income generated in a commercial property depends mainly on these internal and external factors.

1. the demographics and sentiment of the local and more distant community
2. the performance of local and national economies
3. Ease of access and use of the property by the client.
4. customer acceptance of property to meet purchase needs
5. rental cash flow
6. the resulting net income after property operating costs
7. type of lease documentation, terms and stability
8. the mix and placement of tenants relevant to traffic areas and property entry points
9. grouping tenants close to each other to spread customer spend

Any investor new to retail property would evaluate all of these issues with great scrutiny and diligence. They will have an impact on the property’s sales turnover figures. If the mall maintains tenant billing statistics and customer counts from entry points to the property, the numbers will also be invaluable for analysis of the owner’s property.

Here are some other things to consider in your property plans and strategy.

• Anchor tenants in the property must be well known in the community and support ongoing trade growth for both themselves and specialty tenants.
• Look for tenants who can achieve high sales volumes and support percentage rents above base rents.
• Look for lease documents that support reasonably achievable rent levels and see if they have attractive escalation clauses that the tenant can achieve without threatening occupancy and trade stability.
• Some net rent lease documents will pass on a large percentage of the property’s operating costs to individual tenants, thus removing the pressures on the Investor. This will provide protection to the Investor from any inflationary pressure that may occur in the future.

Retail investment property provides good returns to the investor as long as they are interested in the future of the property and base decisions today on the property’s future performance. This property performance must pay due attention to the relationships between the tenants, the owner, the client and the community. That equation will optimize the ownership opportunity.