What’s the benefit of leasing a shopping center?

[Ali Nurmohamed]

For everyone who knows a lot about leases or is involved in shopping center investing I have a question,

What’s the benefit of leasing a shopping center?

[Matt Moreland]

For tenants, the benefits are many:

-Nimbleness/Flexibility: the tenant leasing the space in the shopping center is able to commit to a 3, 5, or 10 year lease term on a space for their business without being permanently tied to the physical location should they choose to relocate for any number of reasons (traffic count, building their own space, poor landlord/tenant relationships, deferred maintenance, etc.)

-Cost: for many tenants in shopping centers, they aren't the huge national anchor tenants that many people think of initially. Whether it be Hobby Lobby, Best Buy, big box liquor stores, etc. Often times the tenants of shopping centers are locally owned boutiques, barbershops, salons, small restaurants, etc. and the operators of these businesses don't have the liquidity to purchase a facility for themselves in addition to starting or running their business. Having the option to lease a space in a shopping center without having to buy the property allows them to be in business. 

-Maintenance: most business owners that become tenants of shopping centers want to focus on running their business, not maintaining the exterior lights, restriping the parking lot, and emptying common area trash receptacles. It is much more convenient for them to pay a landlord who handles the upkeep and day-to-day requirements of maintaining real estate so they can focus on their talents and skills that have the highest ROI--operating their business.

-Location: most of the time, shopping centers are located in strategic locations (hard corners, along thoroughfares, at major highway junctures, etc.). Locations that for the most part, individual businesses would not be able to afford to be located at. By signing a lease as a tenant alongside many other tenants, they can capitalize on premium location (which we all know is key for most businesses, particularly retail), and not pay an exorbitant amount compared to their gross revenue.

-Tenant Mix: contrary to popular belief, it really matters what the tenant mix is in a shopping center. A shopping center with a fantastic tenant mix will have a waiting list of possible tenants hoping to secure a vacant space when one frees up. Complementary businesses act as a rising tide that lifts all boats. If you've got a salon, midscale dining, boutique shopping, retail shopping, cafe/coffee shop, and take out restaurant in one shopping center, you will have customers of each business coming for one tenant and staying to visit others. The bigger the shopping center, the more strategic this can become and the deeper this topic can go. This can be a royal headache to manage, and something that most business owners that are tenants do not want to deal with balancing in addition to operating their already busy business. 

This is just my take from having leased up quite a bit of shopping center/retail space representing both tenants and landlords. Hope this is helpful and answers your question adequately!

Regards,
Matt Moreland