Once upon a time an investor who wanted to get information on a particular market area needed only two things: his Rolodex and a landline.
Today, investors have literally dozens of choices to choose from, each offering hundreds of data points to analyze a retail triple net property.
Still, despite the rapid growth in technology, the basics stay the same. If you want to analyze a retail property thoroughly, these seven factors will give you enough information to make an informed decision.
Location, Location, Location
A “great location” is the first thing you’ll hear touted about a potential investment property. But you’ll need to go deeper than that in order to discover whether a property is a winner.
When considering a property, you’ll need to get both the big picture and the finer details about the location.
First, you’ll want to start off with a map. In order to get an idea of the general area where the property is located, you’ll need to analyze the location at the metropolitan statistical area level. There are several economic indicators that are useful for predicting commercial real estate success.
- An increase in employment is a reliable predictor for growth in the office and warehouse markets, but less so for multifamilies and retail
- An increase in people between the ages of 25 to 34 is a strong predictor for growth in the office, warehouse, and apartment sectors
- Gross Metro Product (GMP) combined with population growth is also a good predictor for growth in most commercial real estate sectors
Next, you’ll need to identify key cities in the MSA, as well as the roads, highways, and streets in the area.
This is important so you can map out which the pattern of traffic in the area as relates to the area in general and the location you’re interested in particular. At the same time, you should mark where major national tenants are located in the MSA. This will be important for your next step: analyzing the competition.
Analyze Your Competition
The second step is to start evaluating and categorizing the retail centers in that MSA according to type and size.
First of all, this will help you identify your competition, determine whether or not the offering price is a reasonable one, and estimate the current level of supply and demand in the area.
Of course, some properties will be too dissimilar to use for comparison, but there will likely be a handful that are similar enough to make a comparison.
Second, not all retailers will be competition; some will draw consumers to the area, which will help your retail property in terms of traffic. Not all traffic generators will be retail properties of course. Colleges, schools, hospital complexes, and public attractions in the area can also bring foot and vehicle traffic to the area.
Get Specific: Check Out the Location Itself
Now it’s time to look at the location of the property itself. Examine the property and take note of access points.
How will consumers access the property by car? By foot? Take note if there is public transportation, as well as convenient drop-off points for taxis. Consumers need easy access to the property, so it’s important to note if there are direct access and exit points for the property – preferably more than one, to prevent traffic backups.
The best way to do this is to simply travel to the property by car, on foot, and on public transportation – that will give you a firsthand picture of the challenges involved for each mode of transportation.
Parking is also important, but not just size. Consumers should be able to maneuver easily from one part of the retail center to your where your property is located.
You should also visually see how customers are moving around the property itself, both at the property you’re interested in and at a nearby competitor. Are some parts of the retail property filled with people while others are relatively empty?
If the NNN property is part of a shopping center or near one, you’ll want to find out how many anchor tenants there are, how much time they have left on the lease, and whether there is a lease renewal in place.
Make a list of the number and size of the other stores as well. Where are the top selling stores located in relationship to the property you’re interested in?
The success of any commercial retail property – even a national one – will depend on a number of factors, and all of it contributes in varying degrees to the success of a property.
But the bottom line remains the same: in order for you to make a profit from the property, the tenants must be selling plenty… and analyzing the market the old-fashioned way (regardless of the tools you use) is the best way to do your due diligence.