Retail Real Estate - Is it your Cup of Tea?

Are you looking to invest in retail shops? I have been investing in retail real estate for the past three decades with great success. It is something that really excites me as no other investment.

You can choose from investing in a single retail unit, block or strip shops, commercial showrooms, bulk retail, small shopping malls and big shopping malls depending upon your budget. Generally speaking, the prices can be less than $90,000 for a single shop to more than $ 100 million for big shopping malls.  

The location is critical for the success of your retail real estate investment. A good retail location should have high pedestrian count or foot traffic. It must have good car parking and be central to public transportation such as close to bus stop and train station.

Generally speaking, retail units are easy to construct being box like structures. However they need to have a good architectural façade to attract customers.

The retail shops are getting bigger in size. The present trend is towards bulk retail. They are expanding into industrial areas. You can add value by converting a well located warehouse into bulk retail that give much higher rent per square meter. Bulk retail in industrial areas are very popular with discount stores wherein manufactures try and sell their excess stock or seconds.

Block of shops or strip retail are very popular with new investors. These shops are generally located in residential suburban areas. They are relatively cheap to buy and the risk gets spread due to multiple tenants.

The success of these shops depends upon getting the right tenant mix. When you are buying a strip of retail shops you must study the type of neighborhood they are located in and the purchasing power of the likely customers. It will help if the bock of shops are located away from the super markets and mega stores which are the main competition. The main risk in this type of retail real estate investment is due to construction of new motorways or new super market in the vicinity.

Commercial Showrooms are medium sized investments and appeal to national tenants who are looking for high profile location. These relatively new and easy care buildings that can be used for different types of retail. They much easier to lease out when compared to larger properties.

Central City retail real estate will need a much higher initial capital outlay on your part to buy. However the higher purchase price is compensated by greater rental and capital growth. The shops are also comparatively easier to lease when vacant. In good locations you will find 100% occupancies with new tenants willing to pay 'key money' or letting fee to rent a shop.

The biggest risk with retail real estate investment undoubtedly is the danger of center of gravity of foot traffic shifting due to construction of a new shopping mall or mega store in the vicinity. You must check with the local Council if any such plans exist at the time of buying your retail investment. Similarly you must try and exit from an investment as soon as plans are announced to construct a new shopping mall that can impact your traffic flow.

You must also be cautious of 'Off the Plan' retail real estate investments. It takes anywhere from three to seven years for a new retail shopping center to establish itself. It is difficult to find good tenants initially as the failure rate is very high. You will also need to drop rents to find a tenant due to over supply of retail shops at the time of opening of the retail center.

It is advisable for you to investment only in well established retail areas as tenant turn over will be very low. A successful retailer is a very secure tenant who will not vacate the premises in a hurry because his success and in some cases livelihood depends upon the location he is renting.

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