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Cotenants, Convenience and Comfort single

April 10th, 2013 by

In my last blog, I detailed how your business’s location and cotenants can affect price. But they aren’t the only factors.

Another element of the analysis is customer convenience and comfort – this means access, amenities and ample parking. All three drive price. The chances of maximizing your sales from a shopping center location are increased if the mall is situated near major cross streets, highly visible to motorists, easily accessible from adjoining roads, features abundant parking and provides amenities, like restaurants, comfortable seating, free Wi-Fi, ATMs, daycare centers. Realize, however, that these conveniences and the amenities that make shopping more of a fun activity than a mundane task require more real estate, and the cost of additional real estate factors into the rental rate. There are costs for taxes and on-going management and maintenance. All will be factored into the rent. The more the shopping center property is enhanced, the higher its value and, therefore, the higher the rent.

While the nature of the development and the landlord’s investment in it will dictate the “pro forma” rent, the individual deal that you make can also affect your rental rate. Negotiate a longer lease term and your rental rate will typically be lower. There are costs to the landlord in leasing space, including broker’s commissions, fit-out costs and, most significant, interruption in the rent stream. The landlord is usually willing to pay for a longer-term commitment by lowering the rent. And, where rent comprises fixed rent and a percentage of sales, you might lower the fixed rent by agreeing to pay a greater percentage of sales.

On the other hand, if you need the landlord to grant you an “exclusive” on an item you sell, you will pay for that in your rent. The more risk you shift to the landlord, the higher the rent will be. If you negotiate occupancy protections (e.g., rent reduction if the mall is empty, a right to terminate if your sales don’t hit a certain minimum), or the right to terminate the lease early if your sales don’t meet a certain target level, your landlord will hedge those risks in the rent. Also, if your landlord gives you an allowance to build your store, that’s not “free money,” and your rent will be increased over what it would have been in the absence of the allowance. Stay tuned: more info on occupancy protection and build-out allowances in future blog posts.

Numerous other factors play a role. Optimize your chances of making the best deal for yourself in the best property by working with experienced retail property professionals like brokers and other licensed representatives. And when it comes time to work through the legal issues, bring in a lawyer, preferably a specialist in shopping center law. Assembling the right team now will save you dollars down the line.

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