Building the perfect strip center? It takes patience and the right mix of retailers

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by Dan Rafter

There are strip malls that seem cursed. Half their stores are vacant at all times. Their parking lots are crumbling. Businesses open one week and are gone by the following month.

There are others that lead a seemingly charmed life. They attract big-name tenants, boast parking lots that are always packed and retain the same high-performing retailers for decades.

Why is this? Why do some strip malls thrive while others struggle?

Jen Helm, senior director of retail at Cushman & Wakefield/NorthMarq in Minneapolis says it comes down to one key factor, patience. Landlords who are patient enough to sign the right mix of retailers have the best chance of seeing their strip malls succeed.

“Landlords need the first couple of retailers they get drive the rest of the center,” Helm said. “They need to start with the best quality of retailers that will fit in a particular market. Work your way down the list. If the top retailer you target says ‘no,’ go to the next best one. Don’t just settle for any tenant.”

Finding that perfect mix 

Location is still a key for strip centers. Those centers located in high-traffic areas in quality markets have a far better chance to enjoy lower vacancy rates and higher rents.

But Helm said that after location, there is no factor more important than landlords who are willing to work, and wait, to create that right mix of tenants for their market.

“Sometimes we see landlords close deals with retailers who really aren’t the best fit for their centers,” Helm said. “It’s understandable: It’s hard to leave an empty space when you have a tenant ready to fill it up. But once you start filling your space with tenants that aren’t really good fits for your center, it’s then hard to get the right mix of quality tenants.”

What kind of mix does work? Helm said that coffee shops with drive-through windows will drive traffic to a strip center in the morning hours. Landlords who add a restaurant to fill in another end cap space. The restaurant might be busier in the afternoon and evening hours. This will help bring activity to a center throughout the day. But by having a business that’s more active during the morning and another that is busier in the afternoon, landlords also boost the odds that their center’s parking lot won’t be so congested that it will turn potential customers away.

Helm says that brand-name fitness centers and cell-phone providers are good fits for fill-in space. Some retail centers will benefit from larger national brands such as Pottery Barn and Restoration Hardware, while others might focus on more regional businesses such as local pizza places and restaurants that don’t have a national presence but are well-known in the region.

Not all strip centers will house national or even regional chains. Others will thrive with a mix of nail salons, dollar stores and even tobacco outlets and vape shops.

That last list of retailers doesn’t sound glamorous, but these businesses have their customers, too. Landlords who cluster several of these smaller service businesses together have a good chance of seeing their strip centers succeed, Helm said.

“If you have your vape shops, tobacco shops, dollar stores and nail salons, you’d have a very nice center that is very profitable,” Helm said. “Those businesses pay good rent. The key is to not mix the two types of retailers.”

In other words, landlords shouldn’t expect Restoration Hardware to show up in their strip center if it’s already filled with a vape shop and a liquor store.

“The issue that I see most often with struggling strip centers is landlords who haven’t looked at their centers as a whole and their position in the market,” Helm said.

Helm points to a center that Cushman & Wakefield/NorthMarq is now managing. The firm has put most of the tenants there on month-to-month leases with the goal of gradually creating a new roster of retailers at the center.

A thrift shop, for instance, fills one of the center’s end caps. That’s not a good fit, Helm said. The owner of the center could get higher rents with a higher-quality tenant for that key space.

“The consignment center is drawing other tenants there,” Helm said. “It’s harder to get a higher, nationally known quality of retailers if a thrift shop is your most visible tenant. We are trying to put the pieces of the puzzle together differently there by marketing to different retailers.”

Puzzle pieces 

Helm said that the puzzle analogy is an apt one. As an example, say a landlord wants to attract a name-brand yoga studio to its strip center. The yoga studio might not agree to rent there unless the landlord can first close a deal with the national coffee chain.

If the landlord is able to land that coffee shop, the yoga studio might not be far behind, and the landlord now has the start of a busy and successful strip center.

“It really is a puzzle sometimes,” Helm said. “Landlords have to be patient to put that puzzle together. If you can get one or two pieces, you put yourself in a much better position to get the better pieces for the rest of your strip center.”

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