A Guide to Retail Leasing

Whether planning their first store or their fifth, new and seasoned retailers face the same difficult decisions. The old adage “location, location, location” describes what many consider the most important aspect of choosing retail space, but there are several additional critical factors to consider when searching for the perfect retail setting. There are basically four categories to consider when leasing retail space: general space characteristics, location, pricing/financial considerations and timing.

General Space Considerations

Size and Configuration

Retailers must determine their overall needs for display and warehousing and choose the right amount of square footage to maximize sales. However, size is only part of the space equation. A critical factor is the configuration of the interior space. If a business depends primarily on catalog sales, warehouse space may be more important. If showroom sales are primary, display space will be greater.

All aspects of the interior layout should be considered. Is a large front display window necessary? Are high ceilings needed to display lighting fixtures or accommodate large pieces of equipment or furniture? Are entryways adequate? What about the general shape? If a strolling customer traffic pattern is preferred, a wide, shallow room (40x50) may be better suited than a narrow, deep space (20x100). Both are 2,000 square feet, but the dimensions can make a big difference. The former may keep customers in the store for twice as long.

Parking

Capacity is an obvious factor that retailers must consider. However, they should also be aware of competition for parking space from surrounding tenants. Is parking reserved or first-come, first-serve? Do nearby restaurants attract large numbers of vehicles during peak meal periods? How will neighboring businesses affect your parking?

Signage and Exposure

Most retail establishments rely heavily on signs to direct customers to their store. When considering a space, think about how the sign will blend with the overall architectural scheme. Are there any design elements that will conflict with signage, such as severe angles or limiting arches? Do the colors of the shopping center blend or clash with logo colors? Most importantly, does the sign provide adequate exposure to attract customers?

Location

When choosing the perfect location, be aware of these four factors: customer convenience, proximity to traffic generators, proximity to competitors and an analysis of how the location fits with future expansion plans.

Customer Convenience

Convenience means different things to different people. Is it more important to be close to a customer’s workplace or home? Is the entrance accessible from busy highways? How safe is it to exit the parking lot? Is it easy to find? Questions like these should be answered from the customers’ point-of-view to get a feel for the level of convenience they will expect.

Proximity to Competitors

There are times when competitive businesses can enjoy a symbiotic relationship. The Broad Avenue arts district in Old Naples is a good example. The mindset is that one gallery may attract some customers, but several will draw many more. Although art is a common theme, each gallery specializes in its own unique genre, which makes it different enough to encourage browsing among several stores.

Two or more businesses offering the same types of products or services may serve only to divide the market instead of enhance sales. Though it is common to see multiple fast-food restaurants at the same traffic light, most likely, the site selectors chose the spots for favorable demographic and market conditions—not to foster a helpful relationship with each other. Determine the advantages of competitive closeness by asking, “Will my business benefit from being close to my competitor?” If your product is too similar, chances are the answer will be “no.”

Proximity to Traffic Generators

Some companies rely on high-volume traffic generators. If a business relies heavily on walk-in customers, the best location may be near a busy grocery store. Restaurants may locate near theatres and auto accessory dealers may choose a location near a Home Depot. Look for stores that will generate traffic that fits your customer profile.

Plan for the Future

Does the proposed site offer expansion opportunities? What are future plans for the area? Is a major business planning to relocate to the area? Will traffic patterns remain the same or is a road expansion expected in the near future? Although a crystal ball would make planning easier, some information is available through city or county public documents.

Pricing/Financial Considerations

Many factors will impact the pricing of a site. The goal is to get the maximum amount of space for the established budget. When estimating costs, include base rent, CAM (Common Area Maintenance) charges, sales tax, improvement costs, impact fees and compliance costs (i.e. ADA or fire code issues). Some of these fees may not apply to every business, but a thorough inquiry can avoid unpleasant surprises.

Two items that can open the door to better financing options are lease terms and personal guarantees. In general, longer leases will result in better financing terms.

Owners/landlords prefer the stability of a long-term lease and are often more willing to negotiate. A personal guarantee, though sometimes not required, may also serve as a bargaining chip. The retailer may put forth a fully backed personal guarantee in return for lower monthly lease payments. There are other options to back a portion of the rent for a limited period of time.

Timing

Finally, retailers must consider the time factor. Anticipate the expiration of the current lease if changing location. It is difficult enough to find the perfect space, but it’s much worse to find it under pressure. If you are trying to open by a certain date, allow plenty of time for plans and specifications, permits, construction, setting up fixtures and inventory.

The Final Decision

Choosing the right location could make or break a retail venture. Every business is unique and has different needs. Base location decisions on a solid business plan and consult a professional when needed. Whether starting a new business or expanding an existing one, retailers should consider present needs, research all the viable alternatives and anticipate the future to attain the best odds for a successful retail establishment.

Craig Timmins is a principal with Grubb & Ellis|IPC, a full-service commercial real estate company serving southwest Florida.