Today we are going to share with you key questions a Landlord should ask when evaluating a retail Tenant. So, if you are a Landlord of a shopping center or retail property, listen up. If you’re a Tenant looking for space, consider being prepared for your first meeting with either the listing broker or the Landlord.
The 1st order of business when evaluating a retail Tenant is to ask a very simple question, “Are you currently in business”.
If the Tenant does have a business, there are a couple pointed questions that you need to ask them to validate whether they are a real prospect for the space or if you are both wasting time.
Question 1 – What sales volume does your existing location produce?
The reason you ask this is to verify whether the tenant can afford your proposed rent and operating expenses. The “industry standard” for Retail Tenant is to stay within a 6% to 8% occupancy cost.
For example, if the Tenant does $1.5 million in annual sales the total occupancy cost that tenant can afford is between $90,000 – 120,000 a year. So if the tenant is looking for a 4,500SF space to lease and assuming a $4.00 NNN the base rent PSF would need to be between $16 – 22.50 PSF.
Question 2 – What is currently driving your sales?
The reason I like to ask this question is you really get to understand what type of business person you are dealing with and if their marketing will drive additional traffic to the center. If they say that they are by a Grocer and that is what drives most of their business, you better make sure that your asset mirrors that. I personally look for Tenants with a strong social media presence now. I recently leased a space to a Tenant that has strong daily social media posts and the parking lot is now packed. Ask yourself, will this prospect benefit the center as a whole?
If the Tenant does not have an established business, obviously this is a higher risk and here are some pointed questions to ask..
Question 1 – Why are you going into this specific business?
I like to ask this question because it really gives me a good idea as to whether the Tenant has history with what they are doing, is educated with what they are doing, and is passionate about what they are doing.
Question 2 – Do you have a business plan?
This further expands Question 1 and gives the Landlord a further understanding of just how competent the Tenant is. If Tenants don’t provide a business plan or give you a very basic business plan then it tells me that they haven’t done their homework. As a Landlord be very aware of Tenants that don’t have a plan and Tenant Improvement Allowance. If they have no plan then you don’t need to be providing any Tenant Improvement Allowance.
If you have further questions or want to discuss in further detail, give any team member at King Capital a call at (505) 292-9607.