If you’re familiar with the wild world of retail real estate, you’ve probably heard mixed things about investing in strip malls. They’re more affordable to purchase than large-scale enclosed malls, urban office spaces or industrial sites. But they also struggle with profitability, according to some investors.
Table of Contents - Investing in Strip Malls
- A glimpse into brick and mortar
- Benefits of investing in strip malls
- Common strip mall mistakes
- Zig while the industry zags
- Investing in Retail: Strip Malls, Single Tenant, Shopping Malls
As with all asset classes, the profitability of a strip mall varies depending on its location, the quality of the owner’s management strategy and the success of the marketing techniques employed. It’s worth looking at the value proposition of strip malls to understand the proper approach.
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A glimpse into brick and mortar
It’s no secret retail real estate as a whole is struggling. Across North America, big-box retailers are shuttering and small businesses are moving online. Creative real estate investors are identifying new types of tenants to lease into space formerly designated for retail. Everything from restaurants to coffee shops, co-working spaces and medical services providers are making strip malls one of the strongest segments of the retail real estate sector.
Strip malls may not be pretty, and they’re far removed from the glamour of investing in luxury retail space. But, done right, strip mall retail can provide you with a solid, flexible investment opportunity, capable of withstanding the tests of the property market.
Benefits of investing in strip malls
If brick and mortar retail is in turmoil, why even think about investing in a strip mall? Well, if you have the capital and expertise necessary to derive profit from a commercial investment, consider these following benefits:
More resilient against market factors
As bastions of local retail, strip malls often host important types of businesses within the community. Strip mall anchor tenants often include grocery stores, big-box discount stores and more. While retail may be changing, people will continue to shop at these anchor tenants, regardless of economic conditions.
Local shopping is on the rise
It’s becoming increasingly important for people to support local shopping in their communities. Rather than positioning your property as a strip mall, you have the opportunity to position it as a center of locally oriented commerce. There are a lot of ways you can creatively leverage your local site.
Diverse tenant base
Strip malls allow you to sign a diverse tenant base. Don’t think you’re saddled with a grocery store and a shoe outlet as soon as you acquire a strip mall asset. Strip mall tenants today frequently include medical imaging centers, blood banks, drug stores and more.
Improve portfolio value control
There’s a lot of room for improvement when you buy a strip mall asset. They usually represent large parcels of strategically located land. This means you can leverage your strip mall asset into another opportunity at a later date if you have the capital necessary to support such an action.
Common strip mall mistakes
While there are benefits associated with investing in strip malls, it’s ultimately up to the investor to identify ways to make the asset profitable—especially in light of changes to the retail sector. Beware the common mistakes investors make when buying a strip mall property. Learning how to avoid them helps ensure the success of your investment, even in a currently depressed market.
Buying inconveniently located strips
The purpose of shopping at strip malls is convenience. Any strip mall you’re considering acquiring should be easily accessed by people travelling to and from work and home. If you’re off the beaten bath—meaning people have to go out of their way to find your asset—it’s a bad purchase.
Purchasing without an anchor lease
The beating heart of any strip mall is its anchor tenant. These tenants tend to be grocery stores and drug stores. If there isn’t a longstanding tenant signed up for a long-term lease in a strip mall you’re thinking about buying, you’ll have to seriously reevaluate your decision to purchase.
Hosting too many satellite tenants
Satellite tenants—the small, locally owned and operated retailers that set-up shop inside strip malls—are what add character and value to shopping centers. Unfortunately, satellite tenants rarely attract visitors on their own. It’s important for strip mall owners to ensure the ratio of the satellite to anchor tenants is correct.
Acquiring an unnecessary center
Even if all the fundamentals of your prospective investment check out, you might still end up making a bad investment if the center is unnecessary. This means it’s located too close to other shopping opportunities in the community.
The key to success with strip mall real estate is securing a quality anchor tenant capable of drawing shoppers to your site. When you’ve signed a dependable anchor tenant, like a grocery store, you’re much more likely to reap a profit from your investment.
Zig while the industry zags
As an investor, it’s up to you to use your creativity and leverage your assets to make your strip mall investment a success. While profiting from a strip mall is possible, it’s important to understand that these types of investments represent large amounts of money, so you’ll have to work extra hard to ensure your property is profitable—or at least on-track to being profitable shortly.
Before buying a strip mall, perform a lot of research on your local market and sub-market, and make sure a strip mall is the right type of purchase for you. There may be other retail opportunities available in your area, representing more lucrative purchases.
If you do opt to invest in a strip mall, consult with other local investors that also hold strip malls in their portfolio. They can provide you with valuable insight into the best ways to make your new investment profitable and reap the best possible returns on your purchase.
The brick and mortar retail industry might be down right now, but people will always need a neighbourhood store to shop at. Securing yours as part of a strip mall investment is one of the best ways to anchor your portfolio. Best of all, your competition is low right now, since the commercial real estate industry has a short
Investing in Retail: Strip Malls, Single Tenant, Shopping Malls
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