In real estate, especially in commercial property investment, we have all heard the expression, “Location, location, location”. It may sound cliché, but the old adage holds true. When evaluating a potential property for purchase, consider location first. First, you want to be in an area with population growth. Second, look for low unemployment rates and healthy income levels. Finally, make sure you have found a high-traffic location. In an ideal world, search for a location with plenty of foot traffic as well. Never underestimate the power of the casual consumer pop-in.
Be sure to evaluate the demographics of the surrounding neighborhood. Your local Chamber of Commerce, library, city hall, or census bureau are all good places to start. Factors such as number of households and estimated age, race and income levels of the population around the shopping center or multi-tenant retail property will paint a picture of your customer base.
Accessibility is also critical for a shopping center’s success. You can have a great location in the middle of a great neighborhood, but things like limited parking space can turn people away from visiting a store or restaurant.
A shopping center’s tenants and their documents can give you a great look into the building’s potential to see if this would be a good commercial property investment.
Tenant turnover is a crucial factor to consider. Find out how long the current tenants have been in this location. If a shopping center has high tenant turnover, you must investigate the causes prior to discounting the opportunity.
You should also look at the current tenants’ leases in great detail. Find out how much longer their leasing terms last. Request a current rent roll which shows all of these details. And, depending on whether you want to keep the shopping center as is or make major renovations, you may be looking for long or short leases.
Over time, any property needs maintenance, and an older property will generally present more maintenance and repair issues. Roofing, electrical wiring, or HVAC systems may need upgrades. In many cases, it is necessary to invest in improving the aesthetics of the property in order to appeal to the discerning tastes of potential tenants and shoppers alike.
If you are buying an older building, be prepared to take on the associated costs and expenses. Older locations might not seem like the best bets at a glance, but putting the money into revitalizing a shopping center does offer positive results. Even an old strip mall can be repositioned to attract businesses and customers.
The key to a successful shopping center is ensuring that the price point for the tenants matches the area’s income demographics. A beautiful luxury shopping center will quickly falter if the area’s residents’ income level do not allow them to shop in the stores or eat in the restaurants. In other words, if the local residents cannot afford it, that will not come. The same is true for an economy-focused retail shopping center located near high-income residents who prefer a luxury retail shopping experience.
Finally, take a look at the surrounding properties and similar shopping or retail centers that would be your competition. Both neighboring properties and the competitors can benefit or thwart your opportunities.
Consider competitors within the surrounding area. Does the investment property fill an unfilled niche, or is the market saturated? Does the property offer unique tenants, such as local businesses, or is it more of the same?
One of the key advantages to strip malls is the relative reliability of tenants, compared to residential tenants since they often sign multi-year leases that allow you to better guarantee the profitability of your investment.
There is plenty of evidence out there to suggest that strip malls are going to become even more desirable retail spaces in the short- to mid-term. With larger malls closing or reimagining themselves as destinations providing luxurious shopping experiences, smaller businesses that would struggle to compete in a mall are finding the visibility and potential traffic offered by a well-positioned strip mall to be very lucrative.
Whether it is food service or healthcare, a well-positioned strip mall gives these businesses nearly unmatched access to local residents. And that means that these properties can potentially start turning a profit much sooner from tenants that will be reliable in the long-term.
Strip malls are also potential venues for healthcare providers to reach out to communities in need of outpatient services as healthcare providers start entering suburban and urban markets, de-emphasizing larger, centralized facilities. This smaller scale approach has been used to provide urgent care, physical therapy, dental care, and even more specialized and technical services like MRI facilities.
These are a few things to keep in mind with your next commercial real estate venture. No matter the type of property you own, you can count on the experts at Evanco Realty Advisors for the very best in full-service commercial administration. We provide everything you need to minimize your ownership workload and maximize the return on investment for each of your commercial properties. We provide peace of mind to owners, implement excellent property management services that enhance value for landlords.
Call us today at (619) 814-1688 to see how our commercial property management strategies can help you!
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