When you are looking at shopping centers, bigger is not necessarily better. While a well-run regional or super-regional shopping center can produce a good financial return, so can a successful small-market shopping center. In many cases, the small town center can turn out a better return. One of the benefits is the control that the owners can have by being “the only game in town”.
Good Customers and Stable Tenants
In a small town center (10,000 to 100,000 people within a 5-mile radius), there is usually little tenant turnover. The tenants are attuned to shifts in the local economy and can be flexible when economic change occurs.
The stores in the small-town shopping centers have a stable business because they concentrate on necessities (food, clothing, dry cleaning services, a coin laundry, mailbox & shipping center, a real estate company, dental & medical care, etc.), thereby insulating themselves from economic downturn which can often spell disaster for merchants of luxury items.
These centers can also benefit from the nature of the customers. They are loyal and want to help their neighbors, who are often the store owners. Further, the small-town shopping center is viewed as a community asset. It can be where community activity takes place–the July 4th parade forms there, band concerts are held there, and holiday promotions are celebrated there. For investors, these community events bring additional traffic and sales.
The Successful Center
A small-town shopping center needs “hands-on” investors who carefully plan the investment.
The successful center should:
- Dominate the market. The key factors are consumer habits, surrounding businesses, and accessibility. Consumers must habitually look to the shopping center as the place to go for their needs. The surrounding businesses must complement the wares offered at the shopping center. The center must be readily accessible via a good roadway system with safe entrances off the highway. The minimum size for market dominance usually is 75,000 square feet.
- Be in a stable market. The employment base and local industry should be strong and diversified.
- Locate in an area with the right demographics. Young families, with growing children who need and want lots of products, are “right”. Analyze the growth potential for the market.
- Have a good tenant mix. There should be a strong anchor, usually a department store or a nationally known grocery chain, with at least 10 years remaining on its lease. The remaining store tenants should offer products or services in special demand in this particular locale. Sporting goods, for example, usually are popular in small-town shopping centers. Expensive jewelry stores typically are not. While electronics, department stores, and clothing stores generally attract customers, sophisticated and costly gift shops do not.
Revitalize The Center
After about ten years, a small-town shopping center may need something to revitalize it. Expanding the center with a national retailer might help invigorate the tenant mix. Enclosing an open mall can be a good renovation to attract new interest. Simply giving the shopping center a face-lift might insure its dominate role in the area.