What are shopping centers?
Shopping centers are considered real estate in the retail asset class. A shopping center can be a single structure with numerous units leased out to retail related tenants or a single parcel with multiple structures occupied by retail related tenants. Shopping centers are typically occupied by retail stores, grocery stores, and restaurants.
Types of shopping centers – The International Council of Shopping Centers (ICSC)
Limited Purpose
A limited purpose center is a group of stores that were built to serve a limited crowd such as an airport or universities shopping center.
General Purpose
A general-purpose center is often designed to be a one-stop shopping experience. These shopping centers can have tenants such as the following: Verizon, Chipotle, Macy’s, Ice Cream, Jeweler, Apple, Recreational Park, Car Wash and Tesla Supercharging stations. These shopping centers encompass a wide variety of tenants. A great example would be a shopping mall.
Special Purpose
A special purpose shopping center is a special purpose mall that aims at a specific target market. For example, a luxurious mall where only high-end brands are sold.
Benefits of investing in a shopping center
Lower Maintenance: Investors have the benefit of passing expenses on to the tenant. Expenses such as utilities, a portion of maintenance, and other expenses that the owner and tenant agree upon
Longer Leases: Investors benefit from tenants looking to establish themselves in a community. This leads to longer leases and lower tenant turnover rates. This decreases the investors risk significantly as cash flows levels will be consistent and vacancy rates will be low. Investors who manage to secure established brands as tenants can nearly guarantee a long-term lease.
Real Estate Investment Trusts (REITs): REITs make owning real estate accessible to the average investor. REITs are companies who focus on acquiring and managing real estate investment properties. Certain REITs focus on acquiring and managing retail properties such as shopping centers. An investor can purchase a retail-focused REITs shares in the stock market and become a partial owner. The shareholder will benefit from the property’s appreciation and rental income through the stock’s growth and dividends.
Should you invest in Shopping center REITs?
Advantages
- Publicly traded REITs provide a high level of liquidity
- Diversification which protects an investor from market volatility
- Dividend Income
Disadvantages
- Interest rate sensitivity
- REITs need to leverage capital to grow which can lead to them being negatively impacted when interest rates rise
