BUSI401 CHAPTER 12

Question 1

Retail properties can be segmented according to one or more of the following criteria:

Answer 1

Size in total rentable area and number of retail units

Services or brands offered within the store: brand or category specialist vs. department store

Margin turnover: high margin-low turnover vs. low margin-high turnover

High service vs. low service

Question 2

CATEGORY EXAMPLES

Answer 2

Costco, Target, and Walmart can be described as department stores that focus on low-margin and high turnover with limited service.

In contrast, category specialty retailers such as Holt Renfrew (high end fashion) and Birks (quality jewelry) rely on high margins and high service. These retailers will have much lower product turnover relative to Walmart.

Question 3

CATEGORY KILLERS

Answer 3

Staples is an example of a category specialist with a full line of products. These stores were initially referred to in the industry as category killers since they offered a narrow but very deep range of products, generally in a warehouse format.

Question 4

2 factors for widespread development of shopping centres

Answer 4

Most consumers value convenience and the ability to comparison shop, they are attracted to a concentration of complementary retail uses.

Question 5

ICSC categorizes shopping centres into four types of shopping centres

Answer 5

traditional, specialty, hybrid, and mixed-use.

Question 6

Define Anchor Tenant

Answer 6

The anchor of a retail centre will drive the greatest amount of customers to the centre and is usually considered strong enough to stand alone.’

Question 7

Traditional Retail Shopping Centres

Answer 7

convenience, neighbourhood, community, and regional/super-regional centres.

Question 8

Smallest and most common

Answer 8

The smallest and most common traditional centre is a convenience centre, also known as a retail plaza.

Question 9

4 things
Convienance Centres

Answer 9

As described by their name, convenience centres provide convenience for shoppers — usually meaning easy in and out access and a narrow range of goods and services. These properties generally comprise a small number of continuous retail units or “pods” of two to four contiguous commercial retail units (CRUs) with a total gross floor area of 10,000 to 40,000 square feet along with a surface parking lot.’ The ideal locations for these centres are high visibility corner locations near or on major intersections, but they may be found anywhere zoning permits on high traffic corridors.

Question 10

Convienance Centres
Total Gross Floor Area

Answer 10

total gross floor area of 10,000 to 40,000

Question 11

Convienance Centres
Common Tenants

Answer 11

Common tenants in a convenience centre are as follows:

• Fuel sales

• Convenience store (C-store) — e.g., 7-Eleven, Mac’s

• Pizza take-out

• Professional offices — e.g., real estate sales, walk-in clinics and labs

• Financial services — e.g., banks, investment brokers, insurance agents

• Smaller, quick service restaurants such as Subway or Tim Hortons

• Local coffee boutiques and small bakeries

• Dry cleaners

• U-brews/winemakers

• Mini-pharmacies — focus on prescriptions, rather than retail products

Question 12

NOTE ONLY

**Convenience Centres

Medical-dental tenants are often drawn to these locations due to good parking, ease of access for customers, modest rents, and synergy with other tenants, such as pharmacies.**

Answer 12

NOTE ONLY

**Convenience Centres

Medical-dental tenants are often drawn to these locations due to good parking, ease of access for customers, modest rents, and synergy with other tenants, such as pharmacies.**

Question 13

Successful Convienance Centre Features

List 2

Answer 13

In addition to location on a busy road, a defining feature for a successful convenience centre is easy ingress and egress (in and out).

Question 14

In addition to location on a busy road, a defining feature for a successful convenience centre is _ _ _ _ _ _

Answer 14

In addition to location on a busy road, a defining feature for a successful convenience centre is easy ingress and egress (in and out).

Question 15

Since convenience centres represent relatively small retail property investments, they are particularly attractive to _ _ _ _ _

Answer 15

Since convenience centres represent relatively small retail property investments, they are particularly attractive to private investors and smaller private real estate investment corporations.

Question 16

Convienance Centre Cap Rates

Answer 16

The combined impact of a larger number of potential buyers, affordability, and desirability of retail assets result in relatively low capitalization rates compared to larger commercial investments.

Question 17

RISKS ASSOCIATED WITH CONVIENANCE CENTRES

Answer 17

A risk associated with convenience centres is the small number of tenants and tenant relationships.

For example, if a key anchor tenant such as Starbucks or Tim Hortons decides to relocate from the centre, the impact on the business enterprises of the remaining tenants may be signifi-cant given the reduction in traffic.

The other problem is that one or more vacancies in a convenience centre results in a high vacancy rate relative to larger shopping centres with more tenants.

Question 18

NOTE ONLY

Neighbourhood Shopping Centres

A neighbourhood centre may be thought of as a much larger convenience centre with a broader range of retailers. The main emphasis remains on providing a convenient range of services, aimed at serving the local neighbourhood and commuters.

However, neighbourhood centres will usually have some conventional retailers, often local merchants offering fashion and speciality retail products (e.g., running shoes, bikes, and boutique fashion).

Similar to convenience centres, neighbourhood centres are vehicle-oriented rather than pedestrian-oriented. Neighbourhood centres are often designed in an L- or U-shape with the parking area bounded by the “wings” of the centre.

Answer 18

NOTE ONLY

Neighbourhood Shopping Centres

A neighbourhood centre may be thought of as a much larger convenience centre with a broader range of retailers. The main emphasis remains on providing a convenient range of services, aimed at serving the local neighbourhood and commuters.

However, neighbourhood centres will usually have some conventional retailers, often local merchants offering fashion and speciality retail products (e.g., running shoes, bikes, and boutique fashion).

Similar to convenience centres, neighbourhood centres are vehicle-oriented rather than pedestrian-oriented. Neighbourhood centres are often designed in an L- or U-shape with the parking area bounded by the “wings” of the centre.

Question 19

A neighbourhood centre’s primary trade area extends about _ _ _ _ _ _

Answer 19

A neighbourhood centre’s primary trade area extends about five kilometres.

Question 20

A neighbourhood centre typically has one or more anchor tenants occupying between __% and __% of the centre’s total rentable area.

Answer 20

A neighbourhood centre typically has one or more anchor tenants occupying between 30% and 50% of the centre’s total rentable area.

Question 21

For a neighbourhood centre total centre area size will commonly range between ____ and ____ square feet.

Answer 21

For a neighbourhood centre total centre area size will commonly range between 40,000 and 150,000 square feet.

Question 22

A _ _ _ _ _ __commonly anchors neighbourhood centres.

Answer 22

A supermarket, also known as a food store, commonly anchors neigh-bourhood centres.

Question 23

**NOTE ONLY

In a neighbourhood centre, retailers renting CRUs will prefer to be near the major anchors because of the positive influence of increased customer traffic volume. Consequently, the rent achieved for CRUs located beside major anchors is often greater than the achievable rent for less desirable or fringe retail locations within the plaza. A common example of this synergy is the strong desire of liquor retailers and brands such as Starbucks to be located beside or very near large food stores. The benefit is multiplied when two good anchors are co-located. For example, a good scenario for Starbucks is to be located beside or very near a liquor retail outlet since shoppers will often combine a visit to both stores.**

Answer 23

NOTE ONLY

In a neighbourhood centre, retailers renting CRUs will prefer to be near the major anchors because of the positive influence of increased customer traffic volume. Consequently, the rent achieved for CRUs located beside major anchors is often greater than the achievable rent for less desirable or fringe retail locations within the plaza. A common example of this synergy is the strong desire of liquor retailers and brands such as Starbucks to be located beside or very near large food stores. The benefit is multiplied when two good anchors are co-located. For example, a good scenario for Starbucks is to be located beside or very near a liquor retail outlet since shoppers will often combine a visit to both stores.

Question 24

The community shopping centre is generally larger than the neighbourhood shopping centre and is designed to serve a __ to ___ kilometre primary trade area, including the immediate neighbourhood as well as a group of surrounding neighbourhoods.

Answer 24

The community shopping centre is generally larger than the neighbourhood shopping centre and is designed to serve a 5 to 10 kilometre primary trade area, including the immediate neighbourhood as well as a group of surrounding neighbourhoods.

Question 25

Community shopping centres focus on a mix of _ _ _ _ _ _ _.

Answer 25

Community shopping centres focus on a mix of convenience and general retail merchandising.

Question 26

A community shopping centre size is commonly between _____ and _____ square feet of leasable area, including anchors.

Answer 26

A community shopping centre size is commonly between 100,000 and 400,000 square feet of leasable area, including anchors.

Question 27

A community centre will usually have two or more anchor tenants taking up between ___% and ___% of the total leasable area.

Answer 27

A community centre will usually have two or more anchor tenants taking up between 50% and 70% of the total leasable area.

Question 28

A key ingredient for community shopping centres _ _ _ _ _

Answer 28

A key ingredient for community shopping centres is sufficient surface and covered parking to meet peak demands during holiday shopping periods.

Question 29

NOTE ONLY

According to the Urban Land Institute, a normal parking ratio for community and regional centres is 4.5 to 5.0 parking stalls per 1,000 square feet of gross leasable area (GLA). Since older centres often have parking ratios in excess of 5.0 stalls per 1,000 square feet of GLA, there may be excess land associated with these properties. If there is potential to replace excess parking with additional free-standing retail buildings, this may add value to the retail property.

Answer 29

NOTE ONLY

According to the Urban Land Institute, a normal parking ratio for community and regional centres is 4.5 to 5.0 parking stalls per 1,000 square feet of gross leasable area (GLA). Since older centres often have parking ratios in excess of 5.0 stalls per 1,000 square feet of GLA, there may be excess land associated with these properties. If there is potential to replace excess parking with additional free-standing retail buildings, this may add value to the retail property.

Question 30

_ _ _ _ _ will have the highest achievable rents of any shopping centre format and the highest common area operating expenses.

Answer 30

Regional shopping centres will have the highest achievable rents of any shopping centre format and the highest common area operating expenses.

Question 31

NOTE ONLY

Regional centre property managers will only lease to the strongest tenants with the most opportunity for business success and best covenants (ability to pay rent).

Answer 31

NOTE ONLY

Regional centre property managers will only lease to the strongest tenants with the most opportunity for business success and best covenants (ability to pay rent).

Question 32

Regional shopping centres serve a wider population base, with a primary trade area between _ _ _ _ _ _

Answer 32

Regional shopping centres serve a wider population base, with a primary trade area between 8 and 25 km, or broader

Question 33

NOTE ONLY

In addition to servicing the surrounding neighbourhoods, a regional shopping centre aims to attract consumers from surrounding communities. Regional centres focus on general merchandise and fashion, with larger service commercial tenants (e.g., banks, food stores, and liquor retail) and synergistic service tenants (e.g., tailors, optometrists, dental-medical services, and travel agents).

Answer 33

NOTE ONLY

In addition to servicing the surrounding neighbourhoods, a regional shopping centre aims to attract consumers from surrounding communities. Regional centres focus on general merchandise and fashion, with larger service commercial tenants (e.g., banks, food stores, and liquor retail) and synergistic service tenants (e.g., tailors, optometrists, dental-medical services, and travel agents).

Question 34

A common size for a regional centre is between ____ and _____ square feet of leasable area, including anchors. A regional centre usually has two or multiple anchor tenants taking up between 50% and 70% of the centre’s total square footage.

Answer 34

A common size for a regional centre is between 500,000 and 900,000 square feet of leasable area, including anchors. A regional centre usually has two or multiple anchor tenants taking up between 50% and 70% of the centre’s total square footage.

Question 35

Super-regional centres are generally located on major transportation routes and serve multiple communities, with a primary trade area between 8 and 40 kilometres. Super-regional centres focus on similar products and services as regional centres, but usually offer a greater variety. The size is normally in excess of 1,000,000 square feet leasable, including anchors. A development usually has three or more anchor tenants taking up between 50% and 70% of the centre’s total square footage. Typical anchor tenants may be a full-line department store, a junior department store, a mass merchant, or a fashion and apparel store.

Answer 35

Super-regional centres are generally located on major transportation routes and serve multiple communities, with a primary trade area between 8 and 40 kilometres. Super-regional centres focus on similar products and services as regional centres, but usually offer a greater variety. The size is normally in excess of 1,000,000 square feet leasable, including anchors. A development usually has three or more anchor tenants taking up between 50% and 70% of the centre’s total square footage. Typical anchor tenants may be a full-line department store, a junior department store, a mass merchant, or a fashion and apparel store.

Question 36

SHADOW ANCHORS

Answer 36

Brokers often refer to smaller retail centres in close proximity to large regional centres as having shadow anchors. A shadow anchor can also exist with nearby shopping plazas, where the power of an anchor in one centre draws shopper traffic to an adjacent centre. The concept is that everyone benefits from the concentration of retail at a specific location.

Question 37

Examples of Speciality Centres

Answer 37

Examples of specialty centres include power centres, big-box stores, factory outlets, lifestyle centres, theme/festival centres, and small co-branded retail properties.

Question 38

Power Centres

Answer 38

Power centres are unenclosed centres anchored by large category-dominant big-box retailers or a series of nationally recognized mini-anchors.

Question 39

Identify the type of speciality centre?

Anchors tend to carry only single lines of merchandise such as consumer electronics, home furnishing, books, clothing, or pet supplies.

These centres are designed as a collection of stand-alone or adjoining buildings with attached strips of smaller speciality retail CRUs.

Landscaping is typically minimal.

Answer 39

ANSWER: POWER CENTRE

Question 40

Community shopping centres focus on a mix of _________. The centre size is commonly between ____ and _____ square feet of leasable area, including anchors.

Answer 40

Community shopping centres focus on a mix of convenience and general retail merchandising. The centre size is commonly between 100,000 and 400,000 square feet of leasable area, including anchors.

Question 41

The community shopping centre is generally larger than the neighbourhood shopping centre and is designed to serve a __ to __ kilometre primary trade area, including the immediate neighbourhood as well as a group of surrounding neighbourhoods.

Answer 41

The community shopping centre is generally larger than the neighbourhood shopping centre and is designed to serve a 5 to 10 kilometre primary trade area, including the immediate neighbourhood as well as a group of surrounding neighbourhoods.

Question 42

• *Power Centre Development
• 2 points -**

Answer 42

Power centres first came on the retail scene in the 1980s as larger, national brand retail tenants who did not want to pay high rents associated with traditional shopping centres and opted to group together, often locating near regional centres to benefit from mall traffic.

Question 43

**NOTE ONLY

Community shopping centres focus on a mix of convenience and general retail merchandising. The centre size is commonly between 100,000 and 400,000 square feet of leasable area, including anchors. A community centre will usually have two or more anchor tenants taking up between 50% and 70% of the total leasable area. Typical anchor tenants may be a department store, food store, pharmacy, home improvement store, or large specialty store(s).**

Answer 43

NOTE ONLY

Community shopping centres focus on a mix of convenience and general retail merchandising. The centre size is commonly between 100,000 and 400,000 square feet of leasable area, including anchors. A community centre will usually have two or more anchor tenants taking up between 50% and 70% of the total leasable area. Typical anchor tenants may be a department store, food store, pharmacy, home improvement store, or large specialty store(s).

Question 44

A shadow anchor is a store or business that satisfies the criteria for an anchor tenant, but which may be located at an adjoining property or on a portion.

Answer 44

A shadow anchor is a store or business that satisfies the criteria for an anchor tenant, but which may be located at an adjoining property or on a portion.

Question 45

These properties generally comprise a small number of continuous retail units or “pods” of two to four contiguous commercial retail units (CRUs) with a total gross floor area of 10,000 to 40,000 square feet along with a surface parking lot.’

Answer 45

Convenience Centres

Question 46

POWER CENTRES / REAL ESTATE

There are multiple real estate arrangements found in power centres. Some anchor tenants such as Home Depot prefer to own the land with a leaseback of the improvements in a build-to-suit arrangement with a developer. In other cases, they may lease only the land. The variation in real estate leasing and ownership is driven by corporate objectives and brand identity. Major or national brands want total control over the cost and design of their building. Big-box retailers such as Home Depot, IKEA, and Superstore believe that they can construct their store at a lower cost than a typical developer, since they rely on tightly controlled material costs and specialized construction management. In some cases, notably Walmart, the big-box retailer will have a special relationship with a real estate developer who constructs the store according to the retailer’s “build-to-suit” specification with a pre-arranged lease-back arrangement to amortize the construction costs and investment return over a 10-year period.

Answer 46

POWER CENTRES / REAL ESTATE

There are multiple real estate arrangements found in power centres. Some anchor tenants such as Home Depot prefer to own the land with a leaseback of the improvements in a build-to-suit arrangement with a developer. In other cases, they may lease only the land. The variation in real estate leasing and ownership is driven by corporate objectives and brand identity. Major or national brands want total control over the cost and design of their building. Big-box retailers such as Home Depot, IKEA, and Superstore believe that they can construct their store at a lower cost than a typical developer, since they rely on tightly controlled material costs and specialized construction management. In some cases, notably Walmart, the big-box retailer will have a special relationship with a real estate developer who constructs the store according to the retailer’s “build-to-suit” specification with a pre-arranged lease-back arrangement to amortize the construction costs and investment return over a 10-year period.

Question 47

These stores are noted for warehouse design, large windowless rectangular single-story buildings, and standardized facades. As we discussed earlier, the emphasis of this retail concept is high sales volume and low margin.’

Answer 47

ANSWER: BIG BOX

Question 48

These stores may be “stand-alone” properties or may be located in power centres or in redeveloped traditional centres.

Answer 48

ANSWER: BIG BOX STORES

Question 49

A defining characteristic for all big-box retail stores?

Answer 49

A defining characteristic for all big-box retail stores is the demand for very large parking lots. For example, Home Depot, when considering sites for its larger stores, is generally only interested in sites ten acres or larger.

Question 50

New trend for big box stores?

Answer 50

One trend is a return to smaller size formats (as low as 20,000 square feet) for big-box retailers such as Walmart, Canadian Tire, Target, and Home Depot.

According to retail research, consumers are becoming tired of spending time navigating crowded big-box stores, store check-outs, and store parking lots. The lack of personal service is another common complaint for these low-margin retailers. The response of big-box retailers has been to develop new, smaller store formats in which the products and service levels are tailored to the needs of the local area.

Question 51

Describe factory outlets . . .

Answer 51

Factory outlets are shopping centres that comprise manufacturers’ and retailers’ outlet stores selling brand name goods at a discount - often selling surplus stock, prior-season, or slow-selling designer merchandise. The primary trade area for these types of centres is 20 to 50 kilometres.

Question 52

A variation on the big-box retailer _ _ _ _

Answer 52

A variation on the big-box retailer is the warehouse club. Warehouse clubs are typically large stand-alone big-box stores that usually require customers to purchase a membership. They sell merchandise directly to the public in bulk quantities allowing for discounted prices. Costco is an example of the warehouse club concept.

Question 53

Outlet mall locations

Answer 53

Outlet malls are usually located in rural areas on major arterial routes, in part to avoid direct competition with retailers who sell the same brands at non-discount prices. Occasionally, outlet malls are found in tourist areas such as Niagara Falls.

Question 54

Cobranded Retail Sites

- 2 points -

Answer 54

Co-Branded Retail Sites

Co-branding allows two or more retailers to join forces on the same site or in the same building in order to conduct business.

This has been fostered by increased competition for corner and other prime retail locations.

Question 55

Cobranded Retail Sites
Common Examples

Answer 55

Common examples include partnerships such as Wendy’s/Tim Hortons, KFC/Taco Bell, Winners/Home Sense, Chevron/White Spot, or Walmart/ McDonald’s operating out of the same retail space.

Question 56

What is a hybrid shopping centre?

Answer 56

Hybrid shopping centres are those that incorporate features of more than one type of traditional or speciality centre. Within this category are lifestyle centres.

Question 57

Lifestyle Centre

- 4 points -

Answer 57

Lifestyle centres are characterized as somewhere in between a community and regional centre, typically located in residential neighbourhoods and serving a trade area of 10 to 20 kilometres.

These centres attempt to re-create a village “main-street” and are usually located in more affluent neighbourhoods.

These are open-aired centres occupied by upscale specialty brands, restaurants, specialty food stores, better quality restaurants, and enter¬tainment venues.

In some cases, big-box retailers such as Home Depot and Winners/Home Sense are incorporated into the developments.

Question 58

Canada’s First Lifestyle Centre?

Answer 58

Canada’s first lifestyle centre, constructed in 2004, was The Village at Park Royal in West Vancouver, British Columbia. This is an example of a centre within a centre, with a traditional regional mall combined with a lifestyle centre (the Village) on the south side of Marine Drive.

Question 59

Free-Standing Stores
Free-standing stores are distinct from shopping centres, but represent an important retail category. These are typically one of the most common retail assignments for appraisers and for real estate sales professionals.

Answer 59

Free-Standing Stores
Free-standing stores are distinct from shopping centres, but represent an important retail category. These are typically one of the most common retail assignments for appraisers and for real estate sales professionals.

Question 60

Mixed Use Buildings

Answer 60

Mixed-use buildings combine office, residential, and/or retail uses together in one complex or multiple buildings on one site. High-rise and low-rise, mixed-use buildings are becoming increasingly common in both city core areas and suburban areas.

Question 61

Street-Front Retail

- 5 points -

Answer 61

Street-front retailing refers to the traditional retail strips in most cities.

They are predominantly local merchants meant to serve the local community.

Tenancy types are varied and include everything from larger stand-alone supermarkets to small kiosks and a wide range of goods and service providers.

In many locations, street-front retail strips have taken on unique ethnic profiles such as a “Chinatown”, or a cluster of similar type merchants like antique vendors or fashion districts.

This cluster is called “retail agglomeration”, where a number of competing businesses located close together create a retail destination for shoppers.

Question 62

Discuss agglomeration synergy

Answer 62

While retailers normally do not want competition nearby, an agglomeration creates synergy, where the collective attractiveness of the retailers is more powerful than their individual presence.

An example is the collection of snowboarding and skateboarding shops in Vancouver’s Kitsilano area — once a lower rent retail location, now a trendy destination for hip lifestyle retailers.

Question 63

In some parts of Canada, traditional street-front developments have suffered from the success of new format retailing. However, in other parts of the country, street-front retailing is stronger than ever. National tenants recognize the presence that a strategic street-front location can bring to their company.

A dramatic example of such a transformation is Robson Street in Vancouver, BC. In the past 20 years, rents have increased by six to eight times with net rents in the range of $180-$220 per square foot. Toronto’s Bloor Street is Canada’s most expensive retail strip with rents over $300 per square foot.

Answer 63

In some parts of Canada, traditional street-front developments have suffered from the success of new format retailing. However, in other parts of the country, street-front retailing is stronger than ever. National tenants recognize the presence that a strategic street-front location can bring to their company.

A dramatic example of such a transformation is Robson Street in Vancouver, BC. In the past 20 years, rents have increased by six to eight times with net rents in the range of $180-$220 per square foot. Toronto’s Bloor Street is Canada’s most expensive retail strip with rents over $300 per square foot.