Oct 07, 2015

Five Factors That Matter When Choosing Retail Space

By Don Catalano

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Retail_Space_Factors

Retail space follows very different rules than other types of commercial real estate. Unlike other spaces that need to serve internal purposes -- like making truck routes efficient or employees happy -- your company's public-facing spaces need to make outsiders -- shoppers -- happy. This means that you need to consider completely different metrics.


Traffic Counts

Many industry experts will tell you that the most important factor determining the success of a store is the number of cars or pedestrians (in urban settings) that pass by every day. Traffic counts give you a quick measure of the total universe of potential customers that will go by your door and, for most types of retail property, it's impossible to have too much as long as the traffic has good access to the property.

 

Access

Access measures how easy it is for shoppers to get into a store. Typically, this refers to vehicular access. For instance, if a property is located at a corner with a signal it is easier to access than properties located in the middle of a block. While the signal helps, the ability to enter and leave on two different streets also increases the number of people that can access it without having to go through turns or other inconvenient maneuvers.

 

Ultimately, access is important because it's usually a good rule of thumb to assume that shoppers are lazy. They will typically choose the retail outlet that offers the greatest convenience at a given price and level of quality. This is why coffee shops that sit on the side of the street that morning commuters pass by typically do better than those on the other side of the street.

 

Shape and Frontage

Keeping with the rule of thumb that shoppers are lazy, the right shape of store can also help to drive performance. Typically, people would rather not enter too deep into a store. Furthermore, they tend to judge the store based on what they can see through the windows without entering. This is why retail spaces that are more wide than deep (or, at least, less narrow than others) tend to have higher sales. It is also why "endcap" locations that are located on the two ends of a center and offer glass on both sides tend to carry higher rents.

 

Co-Tenants

The people with whom you share a center can also help drive traffic to your space. Grocery stores tend to support dry cleaners, since many people choose to do multiple errands in one stop. Conversely, the wrong co-tenants could hurt your business. For instance, you might not want to locate a spa with aromatherapy services next to a pet groomer or a tobacconist. The best centers offer a complementary mix of tenants that all share customers and help to feed business to each other.

 

Occupancy Cost vs. Sales

In other product types, all things being equal, you can compare occupancy costs to determine which sites are best. In retail, however, occupancy cost should be an expense that drives sales. Because of this, what you want to consider as you judge an existing space isn't how much it costs. Instead, it's how much of your sales it costs you. In other words, if a location that costs you $40,000 per year generates $1 million in sales (4 percent), it's probably a much better deal than one that costs $30,000 per year but only generates $700,000 in sales. In that second space, 4.3% of your sales goes to pay the rent, meaning that it's about 7 percent more expensive than the first one, relative to its actual performance.

 

Other great Retail articles:

The Importance of Good Co-Tenants in Retail

Going Green in Retail Commercial Real Estate

Going Dark: Lease Terms Every Retail Tenant Should Know

 

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Topics: retail

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Don Catalano

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