Key Takeaways:
- Shopping center types offer diverse investment opportunities: From massive super-regional malls to niche airport retail, understanding classifications helps target risk and return.
- Location and tenant mix are crucial: Invest in centers with a strong tenant mix that aligns with market needs and boasts a convenient location with ample parking.
- General vs. Specialized: Consider general purpose centers for diversification but be aware of e-commerce competition. Specialized centers offer steady cash flow but can be vulnerable to economic swings.
- Limited purpose properties like airport retail offer high foot traffic but require specialized knowledge and approvals.
The world of commercial real estate (CRE) investing offers a diverse landscape, and shopping centers are a prominent feature. But not all shopping centers are the same. Understanding the distinct classifications of shopping centers is crucial for investors seeking to navigate risk and return. This guide dives into the various shopping center types defined by the International Council of Shopping Centers (ICSC), a leading trade organization.
General Purpose Centers: Catering to Everyday Needs
This category encompasses shopping centers that offer a variety of stores for everyday shopping. Here’s a breakdown of the subcategories within general purpose centers:
- Super-Regional Malls: These retail giants boast expansive spaces (around 800,000 square feet) and multiple anchor tenants (department stores, movie theaters) driving significant foot traffic.
- Regional Malls: Similar to super-regional malls but on a smaller scale (400,000 to 800,000 square feet), regional malls typically have two anchor tenants and an enclosed layout.
- Community Centers: Stepping down in size (125,000 to 400,000 square feet), community centers often have a strip or L-shaped layout and cater to general merchandise or convenience stores.
- Neighborhood Shopping Centers: Focused on convenience, neighborhood centers (30,000 to 125,000 square feet) typically house discount stores, supermarkets, and drug stores.
- Strip Centers: The smallest in the general purpose category (under 30,000 square feet), strip centers are rows of attached stores offering convenience items through mini-marts and traditional convenience stores.
Investment Considerations for General Purpose Centers:
General purpose centers offer diversification as a benefit. Their tenant mix caters to a broad audience, making them popular destinations in desirable locations. However, the rise of e-commerce poses a challenge, particularly for stores selling commodities like clothing and electronics.
Specialized Purpose Centers: A Focused Approach
Unlike general purpose centers, specialized centers target specific consumer needs. Let’s explore the four main subcategories:
- Power Centers: Anchored by “category killer” stores like home improvement and warehouse clubs (250,000 to 600,000 square feet), power centers serve a trade area of 5 to 10 miles.
- Lifestyle Centers: Offering an upscale ambiance with outdoor settings (150,000 to 500,000 square feet), lifestyle centers house national chain specialty stores, restaurants, and entertainment options.
- Factory Outlet Centers: Shoppers seeking discounted brand-name goods flock to factory outlet centers (50,000 to 400,000 square feet) that draw customers from a wider trade area (25 to 75 miles).
- Theme/Festival Centers: Entertainment takes center stage in theme or festival centers (80,000 to 250,000 square feet), which feature retail, service-oriented businesses, and entertainment options catering to a trade area of 25 to 75 miles.
Investment Considerations for Specialized Purpose Centers:
Specialized purpose centers offer the advantage of stable cash flow due to their tenant mix. However, their narrow focus can make it difficult to fill vacancies, and a reliance on entertainment tenants makes them susceptible to economic downturns that impact discretionary spending.
Limited Purpose Properties: A Niche Market
Limited purpose properties cater to a highly specific clientele. Airport retail, a consolidation of stores within a commercial airport, is the primary example in this category.
Investing in Airport Retail:
Airport retail boasts high foot traffic due to its location and limited competition. However, it’s a niche market requiring more government approvals compared to traditional retail spaces.
Beyond Classification: Key Considerations for Shopping Center Investments
Location remains paramount in any retail investment. Here are additional factors for investors to consider:
- Tenant Mix: Does the mix of tenants align with the center’s theme and current market demands?
- Parking: Ample parking is crucial for a retail property’s success.
- Competition: The retail landscape is competitive. Evaluating a target center’s unique advantages against competitors is essential.
By understanding these factors and the various shopping center classifications, investors in CRE can make informed decisions to navigate the exciting world of shopping center investments.