Leasing Retail Space – Location Facilities and Future Development

Parking

Research whether the retail space you are considering has adequate parking. Consider both the local Government code and feedback from tenants within the center. Also consider visiting a center four to six times prior to signing a lease.

Multiple Visits

If you visit the center for the six times at different times in the day and week, it will give you a better feel for the adequacy of parking as well as other potential issues related to the center. It would be overkill to visit each center you are considering four to six times. However, this can provide invaluable intelligence for retail space before you make a serious financial commitment.

Allowable Use?

Retail space is often subject to rules established by the landlord, deed restrictions and local government restrictions. Research these issues prior to investing much time or money in a retail space option. For example, a tenant within the center may have obtained the exclusive right to sell food within the center. If you are considering opening a coffee shop which also sells pastries and sandwiches, you would either have to obtain a variance or move on to the next option.

Approval Process

If the approval process for the deed restrictions or local government are subjective, obtain written information regarding the restrictions and the approval process. Also consider visiting with both the retail tenant rep broker and tenants within the retail property.

Condemnation Plans?

Research the possibility of a condemnation proceeding. Visit with the relevant city, county or highway department officials to determine whether there are any plans to widen any of the streets contiguous to the retail center. If there are firm plans for roadway expansions, research the details thoroughly. It is difficult to develop a successful retail establishment. It would be most unfortunate to develop such an establishment and have to move after only one or two years.

Why Did Previous Tenant Leave?

This section considers the history of tenants who previously occupy the space you are considering and special issues for a new center. Once a space has made it to the “short list”, research why the previous tenant left the retail space. If it was a location for a chain which filed for bankruptcy or an individual who retired and shut down the store, it is not too troubling.

If Previous Tenant Failed

However, if it is someone who operated a business similar to the one you are contemplating, and the business fails, serious due diligence is appropriate. In this event, you should attempt to speak to the proprietor who previously occupied the space. You may also want to speak to the tenant who occupied the space prior to him. Visiting with other tenants regarding the history of the space as well as the history of the center and the prosperity of their businesses can provide excellent insights.

Proposed Center

If you are considering renting space in a proposed shopping center, serious caution is warranted. Is the concept or theme for the shopping center tested? Or is the developer trying to introduce a new team or mix of businesses for this retail property. There is clearly much higher risk that the property will not be successful if the owner is experimenting with a new concept. While you may decide it is the ideal location for your retail space, be aware that the risk of a poorly performing retail center is higher with an experimental concept.

Have National Tenants Committed?

You will certainly want to research which other tenants have committed to the shopping center. If nationally recognized retailers have committed to lease in the shopping center, you can feel comfortable that they had done meaningful due diligence and believe the concept is workable.

Developer’s Experience

Separately, what is the developer’s experience? Is this his first retail development or has he developed 10 or 20 properties over the last five years? If the proposed property is a retail strip center, and the fundamental characteristics of the center are sound, leasing from an inexperienced developer is probably a reasonable risk. Also consider obtaining the work history or résumé of the developer. Does his recent history indicate a pattern of successes or failures?

Strip Centers

Desirable characteristics for a retail strip center include a hard corner location, space which is parallel to at least one of the streets, and a relatively modest size (perhaps 10,000 or 20,000 ft.²). Ideally, it would also have an anchor tenant, perhaps a nationally recognized convenience store. However, many strip centers do not have an anchor tenant.

Don’t Do It

Renting space from an inexperienced developer building an experimental concept is probably taking an unnecessary and inappropriate level of risk.