Retail shopping malls are a very important part of communities around the world, creating jobs and a form of entertainment for the community. Retail malls are sometimes overlooked by investors, but they can be a very robust addition to your real estate portfolio. Here’s why you should consider investing in retail malls, and what to look for when choosing this type of property.
Large malls attract shoppers from the entire region, not just those who live in the immediate area. In suburban and rural areas, shopping malls are the most convenient places to pick up items like clothing, homeware, toys, and electronics in person. They draw business year-round, with particularly high traffic during the holidays when shoppers are buying gifts. Many people also view going to the mall as a form of entertainment, rather than running an errand, which keeps customers coming back on a monthly or even weekly basis. According to a 2015 study, most Americans visit shopping malls at least once a week.
Because shopping malls are destinations that pull customers from a large geographical radius, stores and food vendors will be eager to rent space within the mall. In many cases, it is easier to find and keep tenants for a shopping mall than for a standalone commercial space. This is particularly true if there is already a large anchor property in the mall. Anchor properties are usually large department stores like Nordstrom, Macy’s, or Target that are extremely likely to draw in traffic.
When investing in a commercial property, there’s always the possibility that your tenant’s business could fail, which would leave you without rental income. Because shopping malls contain many different types of businesses under the same roof, your monthly income will be much more stable. For your shopping mall to be a successful investment, it’s important to make sure that your business plan assumes that a few of the units will be empty at any given time. This allows for natural turnover and keeps your risk low.
It’s alsovery common for shopping malls tenants to be willing to sign long multi-year leases, which provides an extra layer of security. This is because setting up the store is a big investment on the part of the retailer, and they’ll want to make sure they are getting a stable property. These multi-year leases help tenants by keeping the rent stable, while ensuring a consistent source of income for investors. The rental prices for shopping malls are also determined by the success of the business, not the property values in the area. This means that no matter where the mall is located, you can make strong returns as long as the businesses are successful.
It’s hard to argue with the numbers when investing in a commercial real estate entity like a shopping mall. Although numbers vary depending on the location and type of property, commercial properties like malls typically average a solid return on investment of around 9.5%. Property costs are usually built into the rent as well – many retail spaces use triple net agreements, which is where the tenant pays for property taxes, maintenance, and insurance.
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