Understanding Shopping Centers - a Lender's Viewpoint
The value of the retail shopping property lies in the retailer's capability to generate adequate sales to pay rent and make a profit. Some retailers produce low sales per square foot of retail space but operate effectively on extremely high profit margins. Other people, such as food stores, operate on very low profit margins but have tremendous turnover in merchandise, so the volume of sales makes up for the minimal profit margin. The retail shopping center is an important point of contact between each kind of retailer and the purchasing public. The retailer's success determines the success of the shopping center, and the center's capability to draw the correct mix of the buying public spells success or failure for the retailer. An evaluation of retail sales facilities must focus on information about shopping patterns, the economics of retailing, visitors flow, and retail design.
The term shopping center is used here, as defined by the Urban Land Institute, to designate "a group of industrial establishments planned, created, owned, and managed as a unit associated to location, size, and kinds of shops to the trade region to which the unit serves." Shopping centers are often classified by the market area they serve--area, neighborhood, or neighborhood. As a result of current trends toward specialization in retailing, nevertheless, shopping centers might also be classified by the type of shopping provided in the center. For example, specialty centers may offer higher-fashion or high-tech shopping, while discount or outlet centers provide continuous discounting in all stores.
A lender's analysis of the shopping center operation and expenses often focuses on the design of the center and the place of tenants inside the center. For successful operation of a shopping center, it is not enough merely to fill a center with tenants and offer their wares to the public. Leasing retail property demands knowledge of products, clients, and the relationship between them. If the retailers, architect, leasing agent, and developer cooperate closely, the retailers can gain the maximum feasible exposure to the correct customer mix at the most reasonable cost to the developer and at a affordable operating expense for each. The rest is up to the buying public.
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