Retail Rental Analysis

[Billy Swanzer]

Hi everyone-  I am in the process of possibly listing a retail building for lease (2,128 Sq ft building on a .75 acre lot).  I'm having a hard time figuring out what to lease it at because there are barely any comparables anywhere close to the subject property.  Can anyone give me tips on some good "rule of thumb" strategies to calculate a monthly rent payment?  Since the owner isn't interested in selling, it's hard to use the 10% rule.  Any information would be helpful.  Thank you in advance to anyone willing to help.

[Joel Owens]

In NNN about 20 years now as a specialist. I do not do any leasing I have retail leasing brokers do that for me when I own properties.

The .75 acre lot first you need to know how much of that is usable to build on with set backs. it could be much more than current building size. You also need to look at parcel shape. An irregular shape makes parking and access harder to work. Look at daily traffic counts going by the site is it 20,000,25,000,30,000 cars per day or more?

Is the property on the going home or going to work side for traffic? Is the property on a hard corner or next to a property on a hard corner with easy access points for in and out?

Is it the main retail commercial node in the area or is it middle of nowhere out of place?

Is the building road frontage or back behind other buildings? Any large back anchors like Wal-mart to drive daily cross feeder traffic to the site? Can the existing piece of land be assembled with adjacent land to make it bigger? Bigger parcels tend to draw more tenant types these days for their business models.

I still buy less than 1 acre parcels but has to be good price and good location with well laid out dirt.

The 30k cars per day traffic you could have only 10k on your property owners side and 20k on the other. is there a median blocking traffic from one side getting into your property? If so consumers are lazy and do not want to turn around just to get to a place. Are sightlines horrible like property road frontage but sits high up on a hill or low down in a hole?

You need to determine if a national tenant, regional tenant, large franchisee, small franchisee, or mom and pop would want the site. The better tenants tend to pay higher rents per ft but want the strongest and best locations. You go down the tenant credit to no credit stack those tenants tend to get the scraps where they will take almost any site in an area. Occasionally they will land a diamond for themselves as a mom and pop tenant but it's more rare because if I own a strong site I would take more rent, better tenant, and exit at a lower cap rate making more money than a risky mom and pop tenant.

How old is the building? Sometimes you can retrofit the outside versus building new as building new is very expensive. A tenant might not even want the building they might want to tear that down and ground lease and build new again. Once building is weird shape or layout or a certain age it's easier to demo it and build all new. Buildings older than 15 to 20 years tend to fit that description more.

When I buy sites we sell some of them after owning a few months to another developer that the tenant prefers or the tenant itself. We can also hold and build to suit, re-rent existing building with tenant improvements to exterior and interior, or ground lease.

We are buying cash about 3 to 4 a month. Lots of overpriced garbage out there so we go for more quality than quantity.

Rent comps go on CREXI or Compstack. Look at active properties on the market for sale. They will often disclose rents tenants are paying in the market and you can kind of get an idea that way.

If you have never done retail leasing before it is a heavy lift and need experience or it's a disservice to the seller. Try to partner up with someone local if you do not have the experience and learn as you go along if leasing is something you really want to focus on.