You may have heard the old adage there are only three things that matter in real estate: location, location, location. Whilst I will not be one to dispute that, it begs the question, what makes for a good location?
When it comes to retail real estate, we look at another big three:
Is it Dominant?
In retail, this starts with size. Look for shopping centres that are the largest in the surrounding areas. It also refers to offering. There needs to be an appropriate mix of stores offering a wide range of retail to attract the widest group of consumers possible. Finally, you need to look at its accessibility: does it have easy access to major roads, are there additional properties, such as office parks nearby that will provide additional footfall, and whether or not it is accessible to public transport. If the answer is yes to all of these questions, you are most likely looking at a property that is dominant in its catchment area.
Is it Defensible?
This has to do with saturation and extension possibilities. The first thing is to take a look at the surrounds. Is there potential for a new development in the area? If not, it will be solidly defensible without a great deal of effort, especially if it has already met the above criteria for dominance. The second thing to look for is whether or not the property has expansion opportunities. A mall that does, will offer an extra layer of defensibility. The specter of abandoned shopping malls in the U.S. haunts global real estate, and no one in their right mind is going to try and build additional malls where one is dominating and has the ability to expand.
Is it Sustainable?
Sustainability is about growth. Growth in both the retail opportunities within the centre, and growth in the area around it. Is it in an area that has growing income and strong employment? Are new offices or entertainment options in the area that would draw more people? Does the property have expansion opportunities?
If you have all of these things, you have a winning mix for a retail real estate investment. All you need to do at that point is look for strong asset managers and corporate governance that support their tenants and innovation. If the last few decades in retail taught us anything, it’s that one must constantly be looking at what’s next to sustain strong growth.
Hadley Dean is CEO of EPP, Poland’s largest owner of retail real estate