WHAT FRANCHISEES NEED TO KNOW ABOUT BUILDING TYPES
As we explain in our new book, Negotiating Commercial Leases & Renewals For Dummies, not all buildings or properties are created equally.
The more you can think like your customer, the more likely you are to choose the right location for your business. Although the fundamentals of negotiating leases remain the same, each property has unique aspects you must factor in.
Retail strip plazas
A retail strip plaza may exist with or without anchor tenants. Anchor tenants are large, well-known, heavily-trafficked businesses (such as many franchises). Unanchored strip plazas are those consisting of small, mom-and-pop types stores. Sometimes, strip plazas are clustered together. Neighborhood plazas typically have a well-rounded mix of tenants, but it’s not uncommon to see
just four or five tenants in a small strip plaza. Larger landlords typically own the larger plazas, with or without local management.
Typical unit sizes in strip plazas are around 1,200 square feet, depending on the property depth, Franchise retail tenants in a strip plaza want at least 18 to 20 feet of frontage (width). If the property is 60 feet deep, then a unit with 20 feet of frontage would measure 1,200 square feet.
Enclosed shopping malls
There are several different kinds of shopping malls. Neighborhood shopping malls may have 100 or more tenants and a couple of major anchors, including a grocery store. A regional shopping center may have 200 or more stores with four or more anchor
department stores, plus a movie theatre. There are a few super regional malls across North America that stand out from the rest of the pack – Mall of America (in Minnesota) and West Edmonton Mall (in Alberta) are a couple of good examples.
Most of the tenants in a shopping mall are national and regional chains and franchisees. Independent tenants are much less common because the landlord wants to lease space to high-volume tenants who will not only pay the base rent, but also a percentage rent on top of that. Due to the additional amenities and maintenance that come with an enclosed shopping mall, the Operating Costs of such malls are typically higher that retail strip plazas.
Shopping center franchise tenants are required to report their monthly sales to the landlord. The landlord can then calculate the average annual sales for any specific category. Franchise tenants should note that with more popular malls and higher than average sales can both drive up commercial rental rates charged.
Stand-alone buildings and pad sites
A stand-alone building can be situated on a single parcel of real estate or located on a multi-tenant piece of land. Leasing opportunities exist for stand-alone buildings on these pad sites where the landlord has designate certain pad areas for stand-alone tenants. Many quick service franchise restaurants (or QSRs) and even fine dining restaurants are built on pad sites. They may be leasing the land or pad site and/or the building itself.
With our busy speaking schedules, we are on the road a lot and we are very accustomed to spending money at airport malls and restaurants. Franchise and specialty tenants, especially those in the food service or restaurant industry, are often interested in space for lease at airports. Mind you, airports can be an extremely difficult opportunity to crack for a franchise tenant –especially in larger airports.
As a word of warning, however, just because an airport appears to have a captive audience of shoppers or diners doesn’t mean these locations are licensed to print money. Your physical location within the airport mall or food court is just as important there as in any other property.
We remember one franchise tenant telling us that his first quick service restaurant (QSR) failed in his airport location. So be cautious in locations where it’s difficult to control your destiny; no amount of advertising will make anyone drive to the airport to shop or dine unless they are flying somewhere.
For a copy of our free CD, Leasing Do’s & Don’ts for Franchise Tenants, please e-mail your request to DaleWillerton@TheLeaseCoach.com.
Dale Willerton and Jeff Grandfield – The Lease Coach are Commercial Lease Consultants who work exclusively for tenants. Dale and Jeff are professional speakers and co-authors of Negotiating Commercial Leases & Renewals For Dummies (Wiley, 2013).