Shopping Center Suitability: The Essentials to Consider Before Buying a Building

Shopping centers are not just a place to go for some window-shopping, but also a place to meet new people and discover new brands. With consumers spending more time online than ever before, the e-commerce market is booming—and so is the demand for retail properties. With tens of thousands of shopping center properties listed on the market and an increasing number of developers launching projects with centers as the predominant property type, now is the perfect time to invest in this asset class. However, there are many things you’ll need to think about before you make that decision. In this blog post, we’ll introduce some fundamentals about shopping centers and give you a few tips for choosing the right one for your portfolio.

What Is a Shopping Center?

A shopping center is a commercial real estate property comprising a group of buildings—typically with retail or service-related functions—alongside parking lots, walkways, and landscaped areas. The buildings in a shopping center are typically connected by a roof or awning on the exterior, and they’re often connected to a common area like a food court. Shopping centers are very popular in developed countries, not only because they provide a space for people to meet each other and shop, but also because they’re often located near residential areas with high foot traffic. There are many different types of shopping centers, and they can be categorized based on their size and the number of tenants they have.

Why Should You Care About Shopping Center Suitability?

When you’re investing in retail real estate, one of the most important factors to consider is the suitability of the shopping center. It’s not just about the shape of the building or the traffic it gets on a daily basis, but also about the surrounding neighborhood. There are certain characteristics of a neighborhood that make it a better fit for a certain retail type than others. Understanding these characteristics can help you select the best shopping center for your portfolio.

Checklist for Screening Shops Before Buying a Building

Before investing in a shopping center, you’ll want to make sure it’s the right fit for you. To do that, you’ll first need to assess a few aspects of the shopping center—as well as the neighborhood surrounding it. Let’s go through each of these items in more detail: • Traffic – If a center is losing traffic, it is likely due to a change in its customer base. This could be due to a demographic shift in the neighborhood, a shift in preferences of the current clientele, or a reduction in foot traffic due to nearby construction. • Price – Price is a significant factor, but it shouldn’t be the only one you look at when selecting a shopping center. With that being said, it’s important to make sure the purchase price isn’t too high for your budget. • Competition – When assessing competition, you can look at each individual tenant and their share of the market, as well as the center as a whole and how much it is being utilized. • Tenants – Tenant mix matters a lot when it comes to shopping center suitability. Ideally, you want to have a mix of all types of retailers at your shopping center. • Intangibles – You also want to pay attention to intangibles when screening shopping centers. For example, you might find a great deal on a center, but if there are too many things wrong with the surrounding neighborhood, it might not be worth it. • Rents – When screening shopping centers, you also want to make sure that the rents are at the right level. Rents should be high enough to generate a good cash flow, but not so high that you won’t be able to find tenants to rent the space quickly.

5 Key Points to Remember When Shopping for a Shopping Center

When you’re shopping for a shopping center, there are a few things to keep in mind. Here are the key points to remember before you buy a shopping center. ✓ Demographics – The demographics of the neighborhood are important. For example, if you own a center that sells electronics, you want to make sure the neighborhood is primarily residential, as consumers who work in corporate buildings are less likely to visit your shopping center. ✓ Traffic – You should also check the traffic at the center. Always check the traffic at different times of the year as seasonal patterns can affect traffic. ✓ Competition – You should also analyze the competition at the center to make sure it isn’t too high. ✓ Tenants – You also want to make sure there is a good tenant mix in the center. Ideally, you want a mix of big-box retailers, small retailers, and service providers. ✓ Intangibles – Finally, you should also pay attention to intangibles when shopping for a shopping center. For example, if there is a new highway being built nearby, this could drive up the value of the center.

Wrapping Up

Shopping centers are a crucial part of the retail real estate industry, and they’re a smart choice for investors looking to get into this asset class. That being said, shopping centers aren’t right for everyone. Before investing in a shopping center, you need to make sure that it’s right for you. You should consider a few aspects of the shopping center, as well as the neighborhood surrounding it. Remember, shopping center suitability is crucial when investing in retail real estate.