Challenges & Solutions of Leasing the Last Retail Spaces in a Shopping Center

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• Challenges Solutions of Leasing the Last Retail
  Spaces in a Shopping Center
• One of the biggest leasing challenges faced by
  our team at Progressive Real Estate Partners is
  the lease-up of the last few spaces in a
  shopping center. Although the retail industry has
  benefitted from over 5 years of economic
  expansion, a changing market has resulted in the
  downsizing or elimination of many retailers and
  that, combined with center use restrictions,
  makes it more difficult to lease the last
  spaces.
• Prohibited uses generally fall into one of the
  following categories
• Uses Prohibited by Zoning Zoning dictates which
  uses are allowed, which are allowed
  conditionally (subject to city restrictions), and
  which are prohibited. Unless it is a significant
  transaction, leasing agents usually cross
  prohibited uses off the list. Even conditional
  uses may get stricken if the City makes it
  fairly clear that a use is not going to get
  approved. For example, a liquor store may be
  allowed on a conditional basis in certain zoning,
  but because the property is immediately adjacent
  to a school, the City may tell you straight out
  that you can apply BUT there is no way the use
  will get approved.
• Uses the Property Cant Accommodate Due to
  Parking Restaurants, hair salons, health clubs,
  and medical offices are the type of uses that may
  trigger increased parking requirements. If you
  dont have adequate parking, you may not be able
  to consider these uses.
• Uses Prohibited by CCRs If the shopping center
  has CCRs (conditions, covenants, and
  restrictions), there may be certain uses that are
  prohibited. It is not unusual in a larger
  shopping center, particularly one built 10 years
  ago, for the following uses to be prohibited
• fitness clubs, medical offices, massage
  parlors, any place of assembly, entertainment
  uses, and others. Unless there is an incentive
  for the parties with approval rights over the
  CCRs to allow a prohibited use, you can also
  cross uses precluded by the CCRs off the list.
• Uses that Violate a Tenants Exclusive Many
  sophisticated tenants ask and often receive
  exclusives that prohibit other tenants from
  operating certain uses within the shopping
  center. Worst yet, in some cases an owner gives
  an exclusive and use language that is very
  broad. For example, I recently encountered an
  exclusive for Asian food given to a quick
  service Chinese restaurant. At a minimum, this
  eliminated Japanese food, Thai food, Vietnamese
  food, a sit down Chinese restaurant, and Teriyaki
  chicken restaurants. These types of exclusives
  knock out more of the potential new tenant
  prospects.
• Landlord Discretion Even though a use is
  allowed, a landlord may not want to lease to (for
  example) a beauty salon if they have a Fantastic
  Sams because the landlord may be concerned
  about creating competition for an existing
  retailer. The landlord may not want a dollar
  store, tattoo studio, or smoke shop in their
  property due to concerns about image and tenant
  mix.
• So what is a landlord and leasing agent to do
  when so many round holes are already filled
  with round pegs. Recognizing that there are
  fewer retail uses and retailers in the market,
  here are a few recommendations

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• relationships. The property owner should develop
  a good rapport with planning and other
  departments so that when help is needed, the city
  already understands the property, the leasing
  challenges, and the owners intentions for giving
  the City what they want (frequently this is
  simply taking good care of the property) in
  exchange for their support of certain uses.
• Parking Studies An owner needs to know how many
  parking spaces they have, and the code
  requirements based upon current uses so they know
  when they may have a problem getting approval
  for a specific use. Many cities allow owners to
  perform parking studies to show the true demand
  at various times of the day. For example, they
  may approve a fitness club recognizing that this
  type of use generates the most traffic in the
  early morning, late in the day, and on weekends
  especially IF many of the existing uses in the
  project are busiest in the middle of the day.
• Be Aggressive for Certain Uses Many owners view
  that if they have 10 spaces and 9 are filled,
  they should get the most rent from the last user.
  The problem is many of the existing users may be
  able to afford top dollar and that is why they
  have been able to hold their own over time.
  Also, the last space may be awkward in size or
  larger than most users want. The challenge
  obviously is that the last lease signed
  frequently sets the market rate and could
  significantly affect property value. I recommend
  explaining the issue to the tenant that all
  the other businesses in the center are paying
  higher rent and then get creative with the
  deal terms
• Offer above normal free rent
• Offer an above normal tenant improvement
  allowance or do some of the work the tenant
  needs to help get the business open.
• Give the tenant a 5 year lease with a discounted
  1st year rent with the right to cancel after the
  first year if they just cant make it work. If
  successful, then they need to start paying the
  higher rent in year two.
• Modify CCRs Sometimes multiple owners will
  have the same issue within a center and it is
  time for someone to take the lead and address
  this challenge with the different owners. This
  can be difficult especially if you have an anchor
  tenant with no apparent incentive to make a
  change, BUT if you can convince them that the
  health of the center will deteriorate over time
  without changes to the CCRs or that because of
  the changes, they will likely end up with more
  customers, you have a chance.
• At Progressive Real Estate Partners weve found
  that a leasing agent works best with an owner
  that allows the agent to take square peg
  tenants and creatively figure out how to get them
  to fit in the round holes that you are BOTH
  trying to Retail Space for Lease.
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  llenges-solutions-of-leasing-the-last-
  retail-spaces-in-a-shopping-center/.