Location is not the only decisive factor – Requirement criteria for objects in city centres (2008)

We have experienced on numerous occasions that retail property in German pedestrian precincts only finds a new tenant after a vacancy of many months or that placing seems impossible for extended periods of time despite good local demand. The causes are many.

The dream of every city chain store with ambitious plans to grow: The offered store is obviously situated in the very best city location according to the occupation plan of the pedestrian precincts. High frequency of people passing in this part of the pedestrian precincts is known and the requested rent is realistic. But latest at a meeting on site with layout plans available, the project is “shelved“ by the expansion manager. What is the reason that individual stores do not correspond any more to the requirements of a modern chain concept today? Are there minimum criteria which must be met as the present “state of the art“ in order to be able to conclude a new, enduring rental agreement? Which factors can ultimately be influenced by a lessor and where can further developments only be observed in a passive manner? Even if the most important evaluation criterion (“location-location-location“) of a store has been met, it is not necessarily suited to all segments of inner city retail business because higher-ranking aspects might be against it. While the new consumer credit specialists prefer locations with unfavourable labour market data when planning their chain network, theme restaurant concepts rather tend to such towns which have a pronounced student or alternative ambience. The lessor can also not influence the direct neighbourhood environment which probably has a great impact on the rent-increasing demand of its property. Telephone shops and opticians seem to be magnet-like attracted to competitors in the immediate vicinity. Textile or shoe chains are more inclined than reluctant to the vicinity of stores of the same segment. On the contrary, other segments like bookshops and bakeries have strong reservations against competitors right next to them. The direct tenant environment is thus a first indication concerning the attractiveness of retail property. Essentially 4 factors determine smooth re-renting of a store itself.

1. SIZE OF STORE

Stores between 100 – 200 m2 continue experiencing a boom, because chains of all segments, particularly fashion chains, can present themselves in the medium genre. Being constantly above 40 % the textile segment commands the largest share in new rental agreements. At the same time, this store size is sought by shoe shops and perfumeries as well as bakeries and opticians, which increasingly outgrow their originally preferred smaller stores. Stores between 50 – 80 m2 are presently mainly let to telephone providers, travelling agencies and costume jewellery shops. Sizes between 250 – 500 m2 are particularly sought by established textile chains which need at least these areas due to targeted market strategies and new sales cooperations. Health & beauty markets look for areas starting approx. 450 m2, if not even up to 1000 m2 are sought for a competitive megashop concept. These sizes have not only been applicable to large cities for some time but also to attractive medium-sized towns of only 40,000 inhabitants.

2. SHOP WINDOW FRONT AND ENTRANCE

A shop window front of a store of 80 – 120 m2 should be at least 5 m wide, for larger areas respectively wider. For example, shop window fronts of only 4 m with a store area of 200 m2 are difficult and can hardly be let for longer periods of time. In addition, there is the “neighbourhood awareness“ which describes the relation of one‘s own street front to the adjacent store. In case of large discrepancies, an interested party will think twice whether sufficient customer awareness is generated if a direct competitor next door has double shop window width at its disposal. Today, glass fronts must run continually from the ceiling to the floor. Only in historic inner cities with listed building ensembles, concessions by the tenant may be expected. And that only if a new shopping centre with optimum store layout is not waiting in the direct vicinity virtually “sucking up“ expanding chain stores. In such cases, owners of retail property can only maintain its value if they manage to find an economically efficient reconstruction and letting concept together with the historic preservation agency in good time. Completely unsuited for letting are now stores with passage entrances and showcases to present the offered goods to passing people as they were very popular before. Such entrances force owners to realise expensive reconstruction prior to re-letting.

3. LAYOUT, STEPS AND PILLARS

Top rents can only be achieved with stores of a straight, almost rectangular layout. Very deep and long sales rooms with narrow fronts pose problems. In general, the shop window front must be in proportion to the sales area behind it. Customers must be able to anticipate which product variety expects them in the store. Steps leading to the entrance are also an excluding criterion for many segments and are only accepted in inner cities if there is great pressure of demand. In that case, however, lower rents must be expected, for the rule of thumb is still applicable that every step at the entrance will account for approximately 10 % less in sales. Sometimes it is possible to level the steps by paving the pedestrian area. Pillars, protrusions or further steps in the back part of the store are objectionable because they facilitate shop lifting and make the store construction more expensive. They always reduce the rent, sometimes even up to 40 % less is paid than for comparable objects without any steps. The problem of (unused) flights of steps inside of a store is to be considered individually since the costs for such building measures vary considerably. Sales areas in an upper storey or basement are presently sought by very few dealers and this only for areas of approx. 400 m2 of ground floor space upwards.

4. HEIGHT OF SALES ROOMS

Recently, the subjective feeling of customers for space as they enter the store has become increasingly more important. In view of decreasing spending capacity and partly saturated markets buying incentives can only be stimulated through the creation of emotional added value. The height of the room is a decisive factor in this “neuromarketing“. While stores of a ceiling height of 2.70 m could be let quite well before, modern “future-oriented“ stores should have at least 3 m in height. The higher the room the more varied the options for the technical building equipment to stage a shopping adventure which is becoming increasingly more important. The influence of special lighting effects and functional background music on customer behaviour has been uncontested for some time. This is why city chain stores undertake continually more efforts in relation to individual air conditioning, lighting and acoustics.

Many of the aspects mentioned above to let retail property in the most favourable manner can be influenced by the lessor through building measures. In view of the fact that enduring re-letting of the property is usually only possible under these preconditions, lessors should calculate the pertaining investment carefully. Under no circumstances should owners renovate first and then look for a tenant, but always do it the other way round. For the store in primary location available for re-letting should not be “peddled“. Property offers which are disseminated via Internet portals, generate high (time-consuming) wastage and result in significantly lower rental income at a later point. Top objects are brokered in a targeted and confidential manner.