Retail property is a special market segment when it comes to property performance. Investors and Real Estate Agents alike should respect and gain the knowledge about this property type before they embark on entering this retail property market. Retail property is complex as an investment type.
Rents are generally higher in retail property given the way the property operates, however the operating costs are also higher. The property needs to perform more intensely for tenants, customers, retailers, and the community. This intense level of property performance pushes operating costs up in things like energy, cleaning, janitorial, lighting, and amenities.
Any retail property owner that is seeking to save money on operating costs and hence tries to reduce levels of maintenance and presentation is on the fast track to failure. Tenants and customers to a retail property soon see the shortcuts that a property owner may be taking to save money. They feel that the property is just not up to scratch, and then will move their focus and trade to the other properties in the area.
This then says that the property owner in any retail property must respect and support not just the tenants in the property, but also the customers and the local community. Without this care and balance, the property will decline locally. Lower rents will be the outcome and the vacancy factor will rise.
When looking at a retail property for assessing its potential and its future, there are some critical points that should be looked at first before any further investigation occurs. Consider these:
Location of the property is highest on the agenda of investigation. Without a good location a retail property will fail. Given the current property location, are there any changes being considered locally that will impact property access or customer visitation. Most particularly you should look for changes to roads, highways, and the local community. Is the local community expanding or contracting and in what way? Parking in a shopping centre is a key element to its success. The car park must firstly be large enough for the existing and future trade, and then it has to be easy to access. When customers access the shopping centre, they should feel good about the visit and not frustrated by getting to and from their car. In many locations, undercover car parking will be a priority in property design. Some older shopping centres where car parks are in the open should consider placing awnings in the car park to improve the customer experience. Design of the property is a physical thing. It starts at the property entry points and then extends into the common areas and the tenant areas. Simply the customer wants to move through and in the property with the greatest of ease. This movement when efficiently handled will create the ‘ant track’ of customers, from which you can then design the tenancy mix and build higher points of rental. Most of the entry points and the corners in the common areas and mall of the property should be reserved for smaller tenancies of broad customer interest. This will get you better rentals and also encourage more shoppers to move around the property. A retail property must also give a modern, clean, and functional appearance. The customer wants to feel good when they visit your property. You want them to come back. Quite a simple target really but it does take continual care and attention. The tenancy mix should always be matched to the needs and wants of the customer and not the rental that the landlord desires. It should be said here that the landlord when negotiating leases with tenants should not randomly give away the right to an option on the lease. Certainly tenants will ask for it in many situations, but it does restrict the landlord’s options as the years pass. In retail property investment the landlord needs to preserve the right to move tenants around, remove the poorly performing tenants from the property, and renovate the property at the right time. It is of note that in many of the larger retail properties, the landlord will not normally or easily give an option for further occupancy, for this very reason.
So there you have some of the key elements of assessment in retail property. These key elements should be assessed first before you move on into a deeper level of property analysis.