Retail shops arid shopping centers seem to be everywhere, and even in bad economic times new shops are built, even when whole shopping centers are less than half filled. There are some very good reasons for this, which makes this kind of investing very profitable if the circumstances are right and the investor sees the opportunities in time to take advantage of them.
This category of property differs from the preceding category in that the majority of rentals in a multi-tenant situation will be retail and service-oriented shops rather than office space. Some shopping Centers and retail shop areas also have offices for rent, but in strictly defined commercial projects. such as office parks and office buildings. the only retail shops found will generally be limited to restaurants, sundry shops. print shops. and the like designed to serve the needs of the workers and businesses in the offices rather than outside customers.
A typical business district in almost any town in the world is apt to have individual shops lining the main streets for several blocks. In older cities, it is not uncommon for many differently designed buildings to adjoin each other, giving cities a “quilt” look.
To counter this look, many cities now have design codes that must be strictly followed to prevent this hodgepodge appearance and to bring a more homogeneous look to the commercial areas. One such town, Boca Raton, Florida, has a code that requires that buildings have a colonial Spanish look along the lines of certain existing buildings.
Cities in many areas of California have similar design codes. Finding retail shops and shopping centers is relatively easy. First, the areas are limited, usually along main streets, which makes the area easy to check out through deed records in the courthouse or deed searches by members of the real estate industry. Many of these buildings may be for sale even though there is no sign out front announcing that fact. Why? Most property owners do not want their tenants to know the property is for sale, This means that the pickings will go to the investor who digs tip the information and acts on it.
Advantages of Retail Shop and Shopping Center Investments
In established areas, h is relatively easy to see the trends and flow of traffic. It does not take long to tell which area is improving and why, and which area is losing ground and why. Of these trends that investors look for, two are significant and can open the door to profitable investing if the trend can be spotted and a deal can be made:
. A decline in rents with increases in vacancy factors due to a temporary situation.
2. A moderate to strong rental market area that is about to experience an event that will have a strong positive impact on rental space.
Each of these trends will lead to a stronger rental market in the relatively near future. The investor who gets in on the ground floor of these trends will have the first chance to acquire the better locations that may be offered for sale. Selecting the property to buy will depend greatly on the ability of the investor to deal with the complexity of renting out retail shop or shopping center space. Buying large retail space is not for the novice investor unless there is sufficient capital to hire managers with shopping center management experience. However, small strip stores or small buildings with several shops can be a good way to get into this category of investing relatively safely. Because these buildings often are in need of repairs and can lend themselves to remodeling to upgrade the look and hopefully the rent, there can be substantial room to improve the income generated from such investments. The biggest advantage in this kind of Investment is that it serves a general need of the community. and if the investor has chosen the location well, it is doubtful that there will be a high vacancy factor.
Disadvantages of Retail Shop and Shopping Center Investments
The main disadvantage is in dealing with the tenants. It is important to be as selective as possible and to upgrade the quality of tenants when possible. It can be tempting to fill a vacant space with a tenant that is less than ideal, yet the investor should set a goal to maintain a certain status in the building or on the street. One slip from this goal. by introducing the wrong kind of tenant into the area, can start a downhill slide that will eventually cause other vacancies.
Take an inexpensive city map of an area that you know well. It may even be the area around your ultimate comfort zone. Go over the map and mark off the different areas you are familiar with into the five categories described in this section. When you pick an area to be developed as your comfort zone, it is important to ascertain how the different categories of property evolved. What was the trend that resulted in the present situation, and how are the different property types faring at present? An understanding of this pattern is essential to begin to remove risk from your investments.