Strip Mall Ownership
One of the unexpected truths of the industrial age is that people enjoy shopping. They enjoy picking things up, and comparing them; it's all the pleasure responses from being hunter-gatherers, without having to watch out for leopards or hyenas. The modern extension of this is retail space that packs a lot of retailers together in close proximacy. We've all seen this pattern – it's the shopping mall or strip mall.
The strip mall is a solid vehicle for commercial real estate investment, provided you're in a part of the country with significant and real job growth. Current figures show that occupancy rates are increasing, with a nationwide vacancy rate of under 8%, and a number of hot markets under 3%. What this means is that you can expect over 90% occupancy rates through most of the urban areas of the country (it's harder to fill rural strip malls, so be warned), and expect on average about 15% churn (new tenants moving out and being replaced) per year. Over the last year, strip mall rents have risen by between 1 and 6%, depending on the market, outstripping inflation, and making them a prime candidate for a buy-and-hold strategy.
Stripalls are a poor choice for a buy-and-flip real estate investor, so make sure that one fits your overall investment strategy. A good strip mall produces a revenue stream that's fairly even, but will not give much more than a 5-6% annual rate of return on your investment. Like all rental properties, you are dependent on the cycle of job growth and the local humps and bumps of the economic cycle; make sure that your rental income is generating a significant cash flow even at low levels of occupancy, because economic news and job creation and loss, like the tides, will ebb and flow, and they're your bread and butter indicator for how to plan with your investment.
Cities that have grown out, rather than up, such as Houston, are good candidates for strip mall ownership. If you're building a new facility rather than buying an existing one, do what you can to drum up clients before the mall is completed; when you know when the doors are open, you'll want to have at least one or two "anchor" businesses in the mall immediately. (An anchor business is generally a large national chain, usually electronics or clothing driven, depending on the demographic chosen).
Strip mall and shopping center design is a mixture of planning and artistry. Look at your local demographic trends, and consider all your options. One of the newer trends in shopping centers are what are called lifestyle centers. Catering to people who are looking for entertainment options as well as shopping, lifestyle centers offer theaters, restaurants beyond the basic food court, and are laid out with a wider array of parking options are a fast growing trend. Many are more open air, and a number of cities (like Philadelphia and Houston) offer grants for making some of your shopping center into parkland. Focus on who you want to come to your center, and build relationships with businesses that will pull in those customers for you.
Recall that shopping centers are, in today's hectic world, family centers, and plan appropriately. If you have a suboptimal space (one that's hard to rent, and every mall has at least one), consider leasing it at cost (or marginally above) to the YMCA or another charitable organization that provides facilities for children with some modicum of supervision. The loyalty you build from harried parents for your other tenants will be greatly appreciated if your mall has a place where children can be sent to play that's safe and well lit while they go and shop without having to mind them.
Do not overlook the cultural opportunities for a shopping center; many of the layout arrangements that make for aesthetically pleasing, friendly shopping experiences can also be used for small open air concerts or small theater productions; in addition to pulling more customers into the mall, it's a point of differentiation that, in a world where over 800 shopping centers, totaling 106 million feet of floor space were opened last year, is critical.
Ultimately, your shopping center is an investment in your community, and an investment you get a solid return on.