Understanding Retail Properties
23 Feb, 2018
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Have you ever wondered how retail properties differ from other types of properties? Is the rent higher or lower? How does the leasing work? These are relevant questions, especially for someone who wants to invest in these types of properties or simply need to because of their business. [Related topic: retail property for lease]
First, it is imperative to define what a retail property is. A retail property is one of the classifications of zoning for properties. These properties are used for marketing and selling products and services. Each county has different guidelines for their zoning classification, some are for retail, some for residential and others for mixed properties. Retail properties are used for innumerable types of industries, such as clothing, books, furniture, among many others, and they are generally located in shopping centers and malls, both small and big.
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Retail properties play a crucial role in U.S economy. They represent more than 25% of the U.S real estate investment. Moreover, they are a niche for consumer spending, which accounts for two-thirds of the domestic economy. Most consumers’ spending happens at retail stores because, although online stores have become highly popular, physical stores are still the most popular type of stores. In fact, many online stores are also opening physical stores to facilitate things for their customers. This proves that people still need to interact with their products before buying them, that is, they need to see them, touch them, smell them, etc.
Although the success of retail stores depends highly on the national economy, the most relevant factor is their location. Furthermore, there is no a good-for-all-stores location. A good location is relative to each type of business. For example, a department store, such as Macy’s, should be ideally located in a big shopping mall. In the same way, a local store that does not have a large production and its target market is small, would not operate efficiently from a mall, but rather in a small shopping center that mostly serves customers from that particular area.
When analyzing the rents for retail properties, they also vary significantly. A bigger and well-located property is not necessarily more expensive. Landlords usually make agreements with their tenants, depending on the nature of the store and how well it performs. For example, a big store that drives a lot of people to a particular shopping center of mall may not pay a high rent. Instead, it can pay the landlord a base rent, and then a percentage of the revenue, based on an agreement previously made by both parties. Landlords and tenants benefit from each other, and thus, it is reflected in the leases’ terms.
There are all sorts of varieties of retail properties in the market, meeting everybody’s preferences. Just remember that when you are looking for a retail property for lease or sale, make sure to have a professional who can advise you properly.
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