What’s the most important factor in whether a retail strip center succeeds or fails? For John Johannson, senior vice president in the Minneapolis-St. Paul office of Colliers International, it comes down to one key: a center’s anchor tenant.
Johannson said that strip centers with strong anchor tenants tend to perform well. Those without them? They’ll struggle.
“By far, the number-one thing we look at is the anchor tenant,” Johannson said. “We don’t get involved with retail strip centers much if they don’t have a very nice anchor. Without that, it’s pretty tough to get the adjoining tenants to go to a center.”
Are there exceptions? Rarely. Johannson said that those strip centers located at busy intersections in strong markets might be able to succeed without a strong anchor. But even then, the odds are lower, he said.
“Sometimes you can be in a very dominant trade area with an unanchored center that does well because the surrounding retail serves as an anchor,” Johannson said. “But that is a daunting proposition. If I have a lesser market or a less desirable site, you’ll have a hard time getting that lead anchor to build off of. And without that lead anchor, it’s awfully difficult to attract the stronger retail tenants.”
There are several strong anchor tenants out there. But Johannson said that investors look first for grocery-anchored strip centers.
Such centers are the most reliably successful, Johannson said, because the grocery stores attract such a steady stream of shoppers.
“Whether a pension fund, investment fund or REIT, most of the investors focus on grocery-anchored centers,” Johannson said. “That grocery use is so important. It encourages the community to visit that shopping center multiple times a week. A dominant grocer, preferably on a new lease of 15 to 20 years and one of the industry leaders, is what you want for your anchor.”
Johannson points to his own shopping behavior as an example. He says that he stops by his local grocery store three to four times a week.
“It is unavoidable,” he said. “There is a reason that these investment firms that purchase properties say they like playing in the grocery sphere. Historically, one of the most stable investment vehicles is the grocery-anchored shopping center.”
Like other retail pros, Johannson says that he continues to see the impact of Amazon on the strip centers dotting his market. And that impact? It’s not been a positive one.
It’s not easy for strip centers to find unique tenants to fill their spaces. That’s because retailers selling such items as clothing, shoes and books simply can’t compete with Amazon. So those retailers aren’t opening new spaces, leaving the owners of strip centers to scramble to find the right tenant mix.
“That is one of the challenges when it comes to filling the non-anchor space or smaller spaces in a strip center,” Johannson said. “The number of unique retailers who are selling something that you can walk out of the store with is continuing to shrink. They are few and far between now. The small ready-to-wear women’s fashion apparel retailer? Places like Dress Barn? They are just about gone. How about a small shoe store? Today, it’s mostly DSW and Shoe Carnival, the big guys.”
Today, strip centers are devoting more of their space to medical offices and service providers. Johannson said that there are very few true retailers left who will rent out smaller spaces in a strip center today.
“Think of dental and eye-wear shops, chiropractors, nail and hair services,” Johannson said. “Those are now the kind of users that are increasingly filling space in strip centers.”
