For owners trying to fill larger, vacant retail space, there are many potential solutions that can help match a property with the right tenant. Around the country, owners are “thinking outside the box,” both in finding creative ways to split up space among several users, and in some cases, looking to shrink or expand space to fit a tenant’s needs.
Of course, the key is that the landlord must weigh the cost of the investment to renovate the center to the return that having the retailer as a tenant will bring to the center.
Here are four tips for retail owners who are looking for ways to fill their vacant spaces:
1) Get an understanding of what other landlords are doing with similar spaces. Around the Southeast, there are obvious options and not-so-obvious possibilities for retail spaces.
One of the most popular changes in use we are seeing is the conversion of former big-box retail space to office use. As two examples, a former Rowe’s Supermarket on Beach Boulevard in Jacksonville was converted to a Virginia College, while in Tampa, a former Borders store in a prime location is now the headquarters for the Florida Orthopaedic Institute.
But if your location doesn’t work for office use, there still may be other appealing possibilities. Many owners have been focused on landing value-oriented chains like Save A Lot, Dollar General and Beall’s Outlet, but those opportunities certainly aren’t limitless.
Among other possibilities: indoor children’s play facilities, federal or state government offices, or fitness clubs.
2) Consider taking a smaller tenant vs. having none at all. Many creative retail center owners are reducing their available space to accommodate tenants who don’t need all the space that’s being marketed. A common way to do this is to build out a simple wall in the back of the space, creating storage behind it.
The cost of such a build-out may be minimal, and consider the advantages of having a tenant vs. continuing to pay maintenance and taxes on an empty space. Also, the smaller shop tenants will benefit from having the additional traffic coming into the center as opposed to an empty shell, thus enabling them to remain profitable.
3) Think long-term as you are leasing the space, assuming you are planning to hold the property for a length of time. It is very easy to take the first deal that comes your way after having a space sit vacant for an extended amount of time, but a few dollars in your pocket today could cost you a fortune in the future if you aren’t considering your overall tenant mix.
Owners need to consider the cohesiveness of the overall tenant mix and ask themselves if the anchor coming in complements the smaller shop retailers. Be flexible on the front end of your lease deals to land the right anchor.
4) It’s important to get the help of a retail real estate expert. It’s critical that owners don’t make decisions in a vacuum. As an owner, you should be leveraging your real estate agent’s market knowledge and network of relationships to benefit your investment as much as possible.
And in negotiating lease deals, there is no standard rule of thumb today, so it’s important to have professional help. The right kind of professional for this work is someone who has strong industry contacts, combined with local market knowledge.
In this market, there is no deal point that can’t be negotiated. Leverage your agent’s knowledge of market conditions to make sure that you are getting the highest value possible and ensuring that you aren’t giving away the farm.
The need for flexibility in doing lease deals can vary widely, depending on how well a center is doing, and how well a shopping center is in attracting the right tenants.
An expert knows that some prospects are out looking for steals, as opposed to simply deals, while knowing that other prospects are happy to pay market rates once they understand the current going rate.
Focus on finding tenants with the staying power to help generate customer traffic to your location. That doesn’t necessarily mean you should stay away from mom n’ pop prospects, though.
For example, a new business being launched by someone who has run a successful business in the past can be quite appealing, because that owner will understand everything from controlling costs, to marketing, to how leases work.
So when looking for ways to fill your space, be sure to think creatively and seek professional help for market knowledge and to protect the value of your investment.
— Based in Jacksonville, Fla., Carrie Smith is Regional Managing Partner at Franklin Street, specializing in retail, tenant, and landlord representation. Smith oversees more than 500,000 square feet of retail space and works with retailers throughout Florida and the Southeast. She was awarded the Co-Star Power Broker designation in 2008 and 2009.