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If you have tried to find a great retail location for your business, you probably have discovered that it is much harder than you anticipated. You should be able to just do a couple of google searches, send a few emails and everyone should be bidding on your tenancy, right? Finding retail space is a different animal than office or industrial space. Here is why:
The 80/20 rule applies to office leasing, in that 80% of the inventory is owned by 20% of the landlords.
Retail is much more balanced.
While high end retail and malls are more of an oligopoly, that is balanced out by the vast amount of mom and pop retail stores that are at a lower purchase price point.
A lower price point means that independent landlords can compete to acquire those properties and the larger landlords are also typically uninterested in small buildings.
When the small, independent landlords have vacancies they tend to gravitate to the least expensive way to market their space by simply putting a sign on the building.
The psychographic profile of a small landlord is pretty much identical from market to market. Most resist participating in technology platforms and paying real estate commissions if they can.
Their default mindset is to put a sign in the front window and see how that works. Their justification is that serious business owners are driving around and calling signs on buildings and that is how their building will be noticed.
Their lack of participation in available space curation websites renders your google query incomplete.
While most people outside of the industry have a perception that all real estate brokers make great money, the truth is that most struggle.
While a struggling broker should be all over any deal that comes her way, it is not about the money it is about the money to time commitment ratio.
Tenants do not see the vast amount of time that brokers invest into their projects.
Many real estate deals fall apart.
It is not uncommon for a real estate agent to complete 3-4 deals on behalf of a tenant before one comes through.
A listing agent may field 500 calls and complete 100 tours for a space before leasing it.
All the tenant sees is that his deal was pretty straightforward and the agent must have made a decent commission.
Retail brokerage is twice as bad as office leasing.
The commissions tend to be smaller, AND there is more work to do.
While full-time commercial agents are better off spending their time exclusively focused on more lucrative avenues such as office leasing, industrial leasing and office and industrial investments, residential agents like to dabble in commercial.
They see it as an interesting way to diversify and change it up from just working on home sales.
Some of these residential agents may be very capable of handling the commercial side of the business.
But what happens when they become very busy with the residential side of their book of business and that is their main focus?
How much effort do those agents put in on behalf of their retail tenants looking for the perfect location?
Their focus can be too divided to really know what is going on in your submarket.
What about the residential agents that do not have the proper training to really be working in commercial?
You may end up working with one of those agents who are either representing you or are the landlord's agent.
In either case, them not being qualified will both add to your frustrations and risk of signing a bad deal without the proper advice.
Large landlords view the real estate brokerage community as their extended sales force. They are happy to pay real estate commissions as real estate brokerages are a source of tenants for them.
But that only applies to office and industrial leasing.
Since office space is a commodity, landlords need assistance from commercial real estate brokers. Retail space tends to sell itself a bit more.
Especially the kind of retail that big landlords buy.
That puts your real estate broker in a big conflict of interest.
Since the rest of the industry works on a commission basis, your broker may be too shy to ask you to pay her fee and may just ignore the big landlord properties.
The end result is that working with a broker for retail = they will not necessarily show you all of the options.
Most franchisors put the burden of procuring real estate on to their franchisees.
That is because they know how hard it can be to secure a good space.
The perfect case study of why:
One boutique corporate real estate brokerage in New York approached a mid level coffee shop franchise to reverse this approach.
They offered to create a database of good locations that were not on the market.
The real estate firm was to find out lease expiry dates and approached landlords with the prospect of upgrading to a stronger tenant (the coffee brand) when those leases expired.
It was a ton of work with no guarantee of any real estate fee.
Finally, a stellar location was discovered at a busy intersection. A weight loss center had just abandoned their space and defaulted.
The coffee franchise quickly submitted a very fair offer through the brokerage.
The listing agent was excited to receive a quick offer from a quality tenant and was optimistic that this would be a simple negotiation. The landlord was just likely to accept the offer.
That was on a Thursday.
By Monday it was leased. To one of their competitors.
Being a mid-level franchise was just not good enough.
The location was strong enough to attract a more established brand from the coffee industry, and there were a few other offers that were received...all without the listing agent having to market the space.
So when it comes to finding great retail space, there is a natural food chain.
The established, creditworthy tenants want great space too, and they are at the top food chain.
Gathering information and curating it into one spot is what makes the internet great.
But once you discover that many of the sites have stale information, now you have much more work to do.
Real estate agents are notorious for not removing listings after they are leased.
They are too focused on their active deals and they have an incentive to keep their stale listings on websites as they still want prospects to contact them (the digital version of having signs on buildings).
We have seen a case of an agent at the largest commercial real estate brokerage in the world had a listing on his personal webpage that was leased 3 years prior.
If you are looking for retail space for your business it would be wise to hire a broker who specializes in retail in your market and does not have outside distractions.
Have a frank conversation about how much the broker fee is expected to be and what that means for their commitment level to your project.
Ask if there are any properties in which they will not be protected on.
Perhaps they can still represent you and you will cover their fee on those sites.
If the commitment to commission ratio is not favorable for the broker, discuss alternative ways in which you can both benefit.
Perhaps you can assist in finding the options by driving by buildings and completing internet searches and they are more engaged when it comes time for negotiating.