S.E.C. Real Estate Observer

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There is a change in the preference and criteria for buyers and owners of shopping centers. We have worked successfully with many shopping center developers and buyers in the area of site location, consulting, leasing, and sale of shopping centers as well as free-standing retail.

Shopping Centers: Today, some of our clients who previously developed community shopping centers in the range of 100,000 square feet to 200,000 square feet have changed their criteria and now have a preference to acquire existing “Shadow Centers”; those strip centers that are located in the shadow of a major “big box retailer” (e.g., Target, Walmart, Kohl’s, Home Depot, Lowes, etc.), and to have those shadow centers anchored by strong traffic generators (e.g., T.J. Maxx, Marshalls, Bed Bath and Beyond, or other strong national or regional retailers). The preferred minimum size is in the 50,000 +/- square footage; location needs to be in an economically viable community, and secondary communities are acceptable. The preferred “cap rates” for these properties runs 7.0% to 8.5%, depending on the local market (but that can vary based on the market location).

Enclosed “regional malls” are losing favor. In our market, 4 malls have been redeveloped by eliminating the mall and converting to “big box” centers or “street scene” store front centers. At one time, malls were in vogue, but the problem with malls is that many visitors to the mall typically go there only once per month and have limited access doors to enter. Thus, shoppers often walk through the mall to get to the shop that they want to visit. However, in the “community strip” centers, customers typically visit on a weekly basis and have the opportunity to park near the entrance to the store they want to visit. Many of these centers are anchored by a grocery supermarket or a big box retailer or home improvement retailer. In our market, 4 malls have converted to open-air centers or big box centers, and our firm has consulted or had a leasing opportunity in 2 of those conversion centers. These redeveloped centers typically have high occupancy rates in the 90% to 100% range, whereas the malls are presently running in the 80% to 85% +/- range. Another change in mall properties is that the tenant mix was previously mostly high end or traditional retailers but now includes many discount-priced retailers.

Older strip shopping centers located in a changing demographic or use area may be struggling to secure tenants and to maintain occupancy level. There is a trend to reposition them to commercial-service tenant occupancy or service office or to add a medical class of tenants along with restaurant or local specialty retail tenants.

When considering the acquisition of any classification of shopping center or attempting to revitalize an existing center, the owner and or purchaser should complete a “retail potential” study. A CCIM or CCIM candidate can connect with the “Site To Do Business” (STDB) program online to do a retail potential for the location as well as a demographic study. A person who is not a CCIM or candidate can also obtain a study prepared by the firm ESRI.

This report provides a percentage and dollar amount of potential sales by retail category as well as the percentage and dollar amount of saturation and oversupply of a retail category.