The Costs of Running a Shopping Center

Even the best-laid retail strategies won’t succeed unless you have a solid plan for operating and maintaining your property. After all, real estate is one of the biggest fixed costs in any business, not just retail. Whether you’re opening a new shopping center or taking over an existing one, you’ll need to factor operating expenses into your cost analysis. This article will discuss three key areas that are essential to understanding the costs of running a shopping center: site analysis, leasing and insurance costs. Each is an important consideration when setting up shop and launching your new business venture.

Site Analysis

A thorough site analysis is a crucial part of the planning process for any new development. Understanding your property’s topography, natural resources, and existing infrastructure will help you develop a sound business plan and a workable retail strategy. What are the site’s natural advantages and disadvantages? What are the site’s key features? How is the land currently being used? What is the zoning for the property? What kind of infrastructure does the site have? These are all important questions to ask yourself when conducting a site analysis. Let’s take a look at each of these elements in more detail to understand how they might affect your business. Topography: The physical features of your site’s topography will determine drainage, natural light and shade, view, and traffic patterns. The topography will also inform your site design. Natural Resources: The presence of natural resources such as lakes, rivers, wetlands, or flora and fauna can be a positive or a negative depending on the development approach. Existing Infrastructure: Existing infrastructure, such as roads, paths, sidewalks, and public utilities can be a boon or a challenge for your site. It all depends on how it’s currently being used. Zoning: The zoning designation for your site is crucial to your retail strategy. It will inform the types of stores you can locate there and the type of design or layout you can implement.

The Costs of Leasing

Retailers pay a premium to rent space in a shopping center. The cost of retail leasing can vary widely between properties, and it can be even more difficult to predict than the cost of building construction. Most retailers won’t share their lease rate calculations, so you’ll have to rely on market data to estimate your leasing costs. Some rates can be as high as $100/sq. ft. Retailers typically pay a percentage of their total sales to the landlord, as well as other operating expenses like property taxes, insurance, utilities, and maintenance.

Insurance Costs

Insurance is a necessary but often overlooked cost of running a shopping center. To stay compliant with local and national retail standards, you’ll need to carry certain types of insurance to protect against natural disasters and fire damage, as well as liabilities. Depending on the location of your shopping center, you’ll need to carry flood or floodplain property insurance, earthquake insurance, and liability insurance. You may also need special insurance coverage against theft or vandalism. Holding a retail policy can be incredibly expensive. You’ll need to set aside a significant portion of your budget to cover insurance premiums, particularly if your shopping center has high visitor volume.

Maintenance and Repairs

Leveraging maintenance or repair experts to keep your property up to code can be a worthwhile investment. It’s a smart way to prevent repair costs from spilling over into your budget. Your maintenance budget should account for any regular upkeep or repair that your property may need. Regular roof repairs, HVAC maintenance, repairs to the parking lot, and cleaning and repainting of the exterior walls may be necessary to keep your shopping center in top shape.

Summing up

Retail real estate is an expensive investment. At the same time, it’s a fixed cost that will be the same for every retailer in your shopping center. That makes it a vital consideration when calculating your business’s overall cost. Before you sign on the dotted line and make your retail real estate investment, make sure you’ve considered all of these costs and have a plan to cover them.