The 8 Types of Retail Buildings and Tenants for Commercial Real Estate
Knowing the different retail asset types and the most common tenant mix for each space can help you better determine risk and cash flow for savvier real estate investment and smart property management. Unfortunately, there are a lot of misconceptions about retail assets, especially when it comes to the names of different property types and what kinds of tenants occupy each property.
For example, the mainstream media, as well as the general public, like to refer to certain properties as “strip malls.” Well, technically, not only is there no such thing as a strip mall, but it’s actually an oxymoron, which you will see in a minute.
But before we dive in, let’s talk about the broad range of retail tenant types. Common tenant types can include (but are not limited to):
- Big box retailers
- Discount stores
- Grocery chains
- Mom-and-pop convenience stores
- Convenience services (like dry cleaners or nail salons)
- Pharmacies
- Specialty retail
- Restaurants
- Banks
Now we are going to geek out, with some help from the experts at ICSC, and give an abbreviated tutorial on the proper names for each retail property type, and what kind of tenants you can expect in each.
1. Malls
These properties are probably the easiest to identify on the retail landscape. The shopping areas of malls are typically enclosed, with the majority of the stores under a roof (although several malls do have outdoor components). They often have major national department stores as anchor tenants and are heavy on specialty retail and apparel.
Malls also traditionally have food courts, though now full-service restaurants and other uses are becoming more common. Their sizes generally start at 400,000 square feet, and the limit of how large they can be is still undetermined. So far, the largest is New South China Mall, in Dongguan, totaling 7.1 million square feet in gross leasable area.
2. Lifestyle centers
A retail property type that started gaining widespread popularity in the 1990s, lifestyle centers are essentially upscale malls without roofs, but they may not have a department store as an anchor. With an in-line tenant lineup similar to malls, lifestyle centers range between 150,000 square feet and 500,000 square feet, though they can go larger. Lifestyle centers can also be characterized by offering full-service dining options. As long as the retail tenants fit the demographics of the surrounding area, a lifestyle center can be a solid real estate investment.
3. Factory outlets
Often incorrectly called outlet malls (a vast majority aren’t enclosed), most people can identify an outlet center. They’re known, of course, for outlet stores run by nationally-known name brands, ranging from mid-priced to luxury. Food options are usually limited. Factory outlets run between 50,000 square feet and 400,000 square feet, but can also go larger, and often do well in high-tourism areas.
4. Power centers
5. Community centers
At 200,000 square feet and up, these are generally the home of at least three big-box stores, such as discounters, home-improvement retailers, and the large specialty chains. Think Walmart, The Home Depot, Best Buy, and Dick’s Sporting Goods. These centers may also contain a handful of smaller tenants, usually a mix of national or regional brands and convenience services. Fast-food chains and other eateries are often found on pad sites in their parking lots. Power centers can be an excellent investment if they’re positioned near major highways and have strong anchor tenants who can fulfill long-term leases.
These usually get thrown into the category of what people refer to as strip malls or shopping centers. Community centers are in the range of between 125,000 square feet and 400,000 square feet. These properties usually have at least two anchor tenants, and can also have a discounter and large specialty shops mixed with convenience retailers, such as drugstores, tailors, dry cleaners, or cell phone stores. Community centers typically have more apparel stores than neighborhood centers.
Because they often include local “mom-and-pop” businesses with less of an established reputation, community centers —along with neighborhood centers and convenience centers —pose a higher risk for lenders and investors. Having strong anchor tenants can mitigate this risk.
6. Neighborhood centers
A smaller version of community centers, neighborhood centers typically have a single anchor, often a grocery store or pharmacy, along with other convenience retailers and local businesses. They run up to 125,000 square feet and can be a good investment if situated in a good neighborhood.
7. Convenience centers
These are very small properties that are less than 30,000 square feet and filled with, well, convenience-based retailers, such as dry cleaners, nail salons, drug stores, and other types of shops where customers are looking for a quick purchase or service. Convenience centers typically don’t have an anchor — if they do, it’s a small convenience store. The best thing about convenience services tenants is that many, like insurance offices and hair salons, stay in business even when the economy takes a downturn.
8. Mixed-use retail
As its name implies, mixed-use retail space is usually a combination of retail space and office or multifamily residential space, often with retail on the ground floor and apartments or offices on the floors above. This use of commercial real estate might have originated in urban areas, but as more people embrace the idea of more environmentally conscious, walkable communities, mixed-use retail is becoming more common in suburban areas near major metropolitan hubs.
Other Retail Tenant Types
These are the types of retail buildings that don’t fit well into the above categories but are a very important part of this commercial real estate sector. They include:
- Freestanding retail stores
- Experiential retail stores (like furniture stores or movie theaters)
- Retail specifically geared toward tourists and travelers typically found in and around vacation and entertainment destinations, and airports
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