A typical shopping center, mall or power center draws consumers who are attracted by the anchor tenant. Whether it's TV's Are Us, Uncle Larry's Really Big Department Store or the newest branch of The Super Mega Fantastic Family Clothing Warehouse, the anchor attracts customers who come, shop and leave.
However, when ancillary spaces are filled with smaller concepts, customers linger. Adding other retailers can attract a more diversified group of shoppers, offer quick-service dining, provide greater benefits to the community and enhance the center's income flow through increased profits and rents. Giving consumers a one-stop-shopping experience can make a facility the go-to destination for the needs of the entire family.
Smaller Tenants, Bigger Profits
Developers and landlords can maximize the profit potential of a commercial property by leasing smaller spaces to multi-unit retailers that are looking for many locations. As developers review their portfolios, they will want to be sure that they have a tenant mix that can increase traffic to their center and increase their properties' revenue stream. Developers who primarily focus on wooing big-box retailers or department stores could miss out on the benefits that smaller establishments generate by broadening their consumer base, as well as encouraging visitors to stay longer and shop.
While a single large retail store can occupy a substantial portion of a property's available space, it is important to consider that the development needs of many multi-unit chains often require more total square footage than the big stores. These chains seek to expand their presence within certain geographic areas that can encompass many of the properties a landlord seeks to lease.
Spreading the Risk
Like a Wall Street portfolio, diversifying a center's retail mix can also help spread the risk. What happens to one's cash flow when a major tenant decides to close up shop, relocate, or faces financial uncertainty? Big-box retailers are no longer the rock of stability they used to be. With the number of mergers and buyouts in the news these days, there's a great deal of safety in numbers. Landlords can secure greater financial footing when there is increased tenant diversity. Wisely investing in smaller establishments will continue to provide the draw for a location and keep traffic flowing, even if the anchor tenant leaves.
Diversification has at least two benefits: Landlords can ensure that their level of income is not overly jeopardized, since they are no longer dependent on the success of one company or brand; and that a steady stream of traffic will continue to make the location viable. The reliable traffic patterns that the smaller retail stores generate will ensure that potential new anchor tenants keep this center at the top of their priority lists.
Although it may be difficult to find one new tenant for that large vacant space, smaller concepts would be happy to move in if the property is subdivided. While managing many more tenants might prove to be more work than just dealing with one, the aggregate income produced could also be greater.
In some cases the developer or landlord will have to cater to the anchor and modify the structure to suit its needs.
Retailers with diminutive square-footage requirements can be much more flexible, willing to take advantage of the scraps of small, unusual or odd shaped spaces. The advantage of working with several smaller establishments is that each retailer's individual preferences may help offset inherent roadblocks.
One business's dislikes may well suit another's needs. A feature that may be a stumbling block for a larger retail establishment may very well work for several smaller units within the same facility. For instance, a property with impeded traffic flow due to a dense population might not entice a big-box retailer or department store, but smaller multi-unit chains could make a perfect match and better suit the needs of surrounding communities.
In addition to increasing and securing revenue streams, developers and landlords can find that growth opportunities may arise from fostering relationships with their smaller retail tenants. In the case of a franchise operation, where an individual entrepreneur in a local market wishes to expand their personal empire, a landlord's other property across town could be the perfect location.
A Wider Network
When working with a large chain, it is even possible to have ready-made tenants for those properties across the nation and around the globe. For example, in 2004, the SUBWAY® restaurant chain leased about 3.5 million square feet of prime retail space, exclusively occupied by the chain's 2,400 new locations that opened last year.
In total, the sandwich chain's worldwide outlets occupy approximately 27 million square feet of space.
A multi-unit chain, with smaller square footage requirements, can also offer expedience and readiness in their ability to capitalize on a vacant location, minimizing the number of unleased properties available.
Frequently, multi-unit chains tend to have a rolling interest in obtaining locations for their expanding businesses, providing the opportunity to work with them to quickly fill vacancies.
Beyond individual unit growth, multi-unit chains tend to have regional, national, even international reach, so there's a potential tenant pool from which to fill any one of your vacant smaller lots.
President, Subway Real Estate Corp.