What do commercial property investors need to consider before acquiring a retail shopping centre?
Acquiring a retail shopping centre might seem like an attractive opportunity to commercial property investors.
These retail sites are often community hubs, with popular businesses paying steady rents on long leases, and thousands of shoppers visiting every day.
But retail is typically the most complex class of commercial property, so it pays to do your due diligence before jumping into this type of real estate investment.
Check the fundamentals first
If a retail shopping centre is to be successful, it needs to satisfy the tenant with ticks in fundamental boxes:
- Is the site on a major road? How much passing traffic? Is the development well-located?
- How easy is it to get in and out of the car park? Is there enough parking?
- How close are competing stopping centres? How appealing are they to customers in the local area?
But what makes any retail shopping centre popular is understanding what the customer wants – rather than just the tenant.
There are four big customer-focused criteria every retail shopping centre should meet before you consider adding it to your commercial property investment portfolio:
Temperature, shelter, space from other shoppers… Customers don’t want to shop somewhere where they will experience any kind of discomfort. Ask how comfortable any retail shopping centre makes the customer feel (especially when inspecting the premises yourself).
Noticing little things can make all the difference.
Ease of access is about making the shopping experience as convenient as possible.
Is it an exhausting walk from the car park to the entrance? Do customers need an escalator, elevator or stairs?
The car park, as always, plays a big role here. Make sure the car park is configured with bays wide enough for people to easily park. You can easily frustrate a customer from the moment they arrive by having inconvenient parking – which isn’t putting them in the right frame of mind to enjoy their shopping experience.
When summer brings the heat, shoppers will want a shaded place to park their car. So undercover or sheltered parking should be kept in investor’s eyes.
Similarly, if you’re looking at a retail shopping centre investment opportunity in a place where it rains 300 days of the year, have covered parking and walkways.
3. Age and quality of the property
Shopping Centres need to be refreshed every 10-15 years. This means new fit outs, new coats of paints and new instalments so they stay attractive. For example, many centres are expanding and shifting to experience shopping – it’s always about staying relevant and appealing to customers.
Range refers to the selection of goods available within a retail shopping centre. And a store’s range of goods, like price, is at the tenant’s discretion rather than the landlord’s.
If something is missing from a retailer’s range it is a smart landlord’s job to make sure another store in the centre has it.
A landlord can even compare stores to see if they offer the same goods but at varying prices – this might create some smart competition. It might seem counterintuitive, but if you have a small independent greengrocer outside a major supermarket, like Woolworths, sales of vegetables in the Woolworths will go up. This is a common anomaly we’ve seen.
People like having more range and more choice.
Do your homework; invest wisely
If you’re thinking about investing in a retail shopping centre, there’s a lot to consider. This article hasn’t even touched on financing, centre management, attracting tenants, or leasing arrangements, for example.
To invest well on a commercial property investment on this level, you need significant expertise. That’s why many recommend investing with a professional commercial property investment syndicate.
If you would like to know more about investing alongside an experienced syndicate, get in touch today. We share the risks and rewards with you.