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Incorporating Community Retail Centers Into Your Property Portfolio

Published: 02-13-24 Category: Investing

Specializes in providing actionable insights into the commercial real estate space for investors, brokers, lessors, and lessees. He covers quarterly market data reports, investment strategies, how-to guides, and top-down perspectives on market movements.

Our country's recovery from the COVID-19 pandemic has changed the face of commercial real estate (CRE) while creating new opportunities for investors. In particular, the retail sector is expanding faster than during pre-COVID years, proving that many consumers still prefer in-person shopping to Amazon.

Investors and owners with the financial backing to purchase and manage larger amounts of commercial square footage are displaying interest in community retail centers.

First, let's define a typical community retail center and how it differs from other retail CRE properties.

What Is a Community Retail Center?

A community retail center offers consumers a convenient mix of general merchandise and convenience-oriented tenants. They're often home to one or two larger big-box retailers such as Target, Walmart, or grocery stores. These are commonly described as anchor stores. The center is also home to a number of specialty retailers.

For example, a community retail center may feature a grocery store as its anchor, with neighboring stores offering apparel, pet supplies, gaming systems, shoes, toys, eyeglasses, dining, and beauty services.

Commercial retail centers' square footage and overall sizes range from 100,000 to 300,000 square feet. This translates into a variety of options for potential investors and owners.

Choosing the ideal property will require similar research as required for other CRE properties. Here are some analytics to consider.

Factors to Consider When Shortlisting Properties

In addition to comparing the current pricing of potential investment purchases, other essential data is required.

Since the right location is vital, here are ways to determine this:

Obtain data for the center's vehicular and foot traffic nearby. This should include public transportation.
Research nearby neighborhood incomes. Wealthier consumers equate to more disposable income and spending.
Convenient access to major roads and intersections, together with adequate parking, will encourage customers' return visits.
Centers near areas with larger employers often enjoy lunchtime and after-work traffic boosts.
While other popular destinations near your center can encourage traffic, such as a multi-screen cinema, too much competition in an over-saturated shopping area can make it problematic to attract and keep retail tenants.

Next, we'll look at investors' responsibilities for the maintenance and upkeep of a commercial retail center and why a professional approach is vital.

Keep It Shiny: Maintenance Management Basics

While these may seem a secondary concern, especially if you're a hands-off investor, ensuring that every element of a commercial retail center is well-maintained is essential for ensuring profitability.

Need more proof? Here are excerpts from a survey conducted by Enviro USA:

99% of US adults reported that poor cleanliness would negatively impact their perception of a business.
52% of consumers have avoided businesses because the storefront was dirty.
95% of shoppers say that exterior appearance influences where they decide to shop.

Here are details of essential maintenance that need to be part of your budget spreadsheet or cost forecast. You may keep contractors and service providers on call or opt for a building care company that handles all of the items below.

HVAC systems do more than keep your retail visitors and tenants comfortable. Well-maintained cooling and refrigeration systems keep many grocery items fresh while preventing expensive spoilage.
Landscaping is one of the first things customers see. Hiring a reputable landscaping firm maintains an inviting appearance for the center and its individual retail stores.
Plumbing services are essential for tenants and the center's restroom facilities.
Janitorial services should keep shared thoroughfares and walkways tidy. This helps keep shared areas attractive while minimizing the chances of a slip and fall injury.
Pest control can be a never-ending job, especially if your center is in a warmer climate.

Next, let's look at some industry analysis that has identified some potentially lucrative investment opportunities in the future.

Key Trends for Commercial Retail Center Tenants

While owners of commercial retail centers aren't directly involved in their tenants' inventory, it's important to research potential future tenants' needs, so your leasing agent can promote vacancies in your center.

Here are details of evolving consumer behaviors that are already affecting the consumer retail industry.

Analysts have identified a need for specialty grocery retailers. These will offer in-demand organic and ethnic products and/or prepared meals similar to home-delivery meal kits.

Experiential retail is defined as immersive shopping environments that improve the overall retail experience.

One example is augmented reality (AR). This allows shoppers to use their smartphones to add product images to images of their homes, making it easier to choose furniture and decor.
In-store virtual try-ons use similar technology to enable consumers to try on cosmetic items before buying.

Recent inflation renewed interest in discount retailers, and this trend shows no sign of slowing down. These include “dollar stores” and off-price apparel and home goods retailers such as the TJX Companies, Inc. group.

Spa and wellness services are expected to continue to see increased retail growth between now and 2028. Consumer interest in beauty services shows no sign of waning.

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