What to Look For In a Retail Tenant
Retail properties have been proven to produce great returns for Canadian landlords and real estate investors. However, the recent Target Canada event is a reminder that selecting the right tenant is critical. So how can Canadian retail property owners identify the most reliable and profitable tenants?
Credit & Guarantees
Credit and guarantees are two of the main factors most retail property landlords look at when evaluating tenants. Who is guaranteeing the lease? What is their credit like?
This won’t always make a difference, but it can help. Although the Target Canada stores did not perform as expected, the guarantees by the US based giant may save many landlords from financial ruin due to the loss of their rental income. It is also worth noting that national tenants with great credit will also have more bargaining power. This can offset the predictability advantage, with the disadvantage of being locked into lower yields for long periods of time.
Operational Efficiency & Profitability
Target Canada wasn’t competitive enough to survive the Canadian market, however, choosing tenants isn’t just about survival. With many commercial leases incorporating provisions for rent ‘bumps’ based on revenues and profits, having tenants with better profit margins should be a priority.
Retailers have more profit margin building tools than ever before, especially the smaller ones. Through the outsourcing of back-end functions and incorporating social and mobile marketing technology, a small retail shop could have the potential to yield incredible per square foot sales by implementing these tools.
A little common sense is worth a lot. Is the product or service the tenant selling a good fit for your property and area? Is it a staple which will be needed? Is it trending, with potential to bring in more traffic? Or is it on its way out?
These market intuitions can be indicators of how well the tenants will fit in with your property.