Investors and developers of retail real estate know there is magic in the tenant profile you allow into your shopping center. From an outsider’s perspective, you may go to the center and wonder why in the world there is a certain tenant business in the center, and why did another close after only a couple of months of operations?
Tenant Mix
The goal of the landlord at a retail center is beyond rent collection. The center is a fine balance of many businesses that if blended together correctly, will add synergies to each other for higher revenues and higher rents. One has to weigh the market demand for products being sold to ensure the business will be successful in spite of the retailer’s business plan.
Drivers
1.) Anchor Tenants - You may hear the term “Anchor Tenant” – this is usually the largest tenant in the center and it is the reason why people want to come to the center. Think of grocery stores, fitness centers or other large retailers that bring in customers. Without them, the sandwich shop may not do as well without the traffic draw of the anchor. These anchor tenants usually get heavily discounted rents, because they know that the success of the center is based on their traffic draw.
2.) Traffic Counts - are what most retailers look for in a location…how many eyes/cars pass by the center each day correlates to a dollar volume per year.
3.) Population Radius – depending on your business, you want a heavy population in close driving distance to the center-with a high household income generating disposable income to support their shopping habits. Conversely, a gas station/retail center in the middle of nowhere, along a major highway may not need any population, but the demand for their product is high with traffic alone.
Restaurants
Everyone love restaurants, right? The proper mix will have foods in demand for the neighborhoods but also limit the number of dining options due to parking overloads and cannibalization of each other’s business. There are only so many stomachs that can be fed, and you can have too many restaurants that will dilute the success of others.
Nightclubs, Vape Shops and Tattoo Parlors
Demographics will determine the success of the tenants you have but also attract or detract from users of other parts of the center. Having a Vape Shop in a family center with a children’s tutorial service next door isn’t a good idea. Likewise, a dollar store will not do well in an affluent area, no more than high end steak bar will do well near a trailer park.
The Retail Business that is open everyday but no one buys anything
Many stores today are a front to display items, but the bulk of their sales are from on-line customers. One tenant has a store that doesn’t make enough money to be successful, but the proprietor is there every day and backed by their wealthy spouse, who is happy for them to have something to do with their time. Subsidizing the hobby is worth the investment to give them an occupation and a purpose while they are off conquering the world in another profession. These tenants provide little threat of default with financial support by the high-net worth spouse.
The next time you venture out to the store, look around you at the center to see if you can understand how tenants fit with each other to drive the success of the center. The best retail shopping centers are the ones that offer you the most convenience in one location – your coffee shop, grocery store, bank, restaurant, mobile phone, eye-glass shop, nail and hair salon and pet store. You can get multiple errands done conveniently in an hour in one location, saving time sitting in traffic.
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