The Case Against A Shopping Center
I’ve personally owned practices in several different types of locations. My first practice was in Rancho Cucamonga, CA, in a K-Mart shopping center on Haven Avenue. It was a very active and busy shopping center at the time. I was like many young buyers who wanted that shopping center location and went that direction.
My next practice was in an open air professional building in Claremont, CA. I really like that kind of professional building since it can be the best of both worlds. Easy parking, easy access for patients and usually some visibility.
And my third practice was in a small shopping center in a more remote area that had only 4 – 5 tenant suites and was set back somewhat from the street.
So, I’ve tried it all – and my comments here are based on my personal experience and primarily client experiences – after negotiating over a thousand leases.
The main reason buyers like shopping centers is visibility.
Is this even valid? I really don’t think so. I don’t think people go to a dentist because they “just saw you there.” I mean, would you?
I personally wouldn’t pick a dentist – a dermatologist – even a hair salon or massage place based solely on the fact I saw them while getting my coffee at Starbucks.
In my opinion, he higher-end the practice, the less likely it is going to be in a shopping center. So, it depends on what kind of practice you have or want as to where you should be.
Shopping center locations are usually associated with coupons, groupons, deals, and promotions, and promos.
I don’t think that’s the way to go – always chasing the lowest fee in town.
Shopping center locations are usually associated with “off hours. “ In fact, specific hours of operation are often required in a lease.
I’m not saying that working Off Hours is not a good thing – but having it required in a lease doesn’t feel very good to me and I want the flexibility to have the hours I want.
Rent in shopping centers is almost always higher than rent at other types of location - because owners can charge more in shopping centers because of location and you will have to pay all the center expenses.
Location IS important to retail stores - I mean, people DO go to Starbucks because they saw it there. They are only risking a cup of coffee – not their health.
CAM, Common Area Maintenance Charges, or Triple net charges, are almost also included in a shopping center lease. This means that ALL expenses of the property are passed through to the tenants - based on their percentage of occupancy.
By all, I mean things like management fees, reserves, equipment, everything. That usually adds 70 cents a square foot to several dollars a square foot or more to the lease charges. So, when you are comparing locations and leases – make sure you are comparing apples to apples.
TRIPLE NET TYPE OF LEASE
Triple Net Leases – which are generally Shopping Center leases – are leases that provide for all of the building expenses to be passed through to the tenants.
This type of lease is by far the most expensive kind of lease you can enter into. I mean, sometimes they are worth it and sometimes great practices are in shopping centers – but I think it is the exception rather than the rule.
Many times, you have to rent more space than you need in shopping center. I think that is always a bad idea, to rent more space than you need – because rent just keeps going up, year after year – and space that is just sitting is a total waste of money.
CONFIGURATION OF SPACE
Let’s talk about configuration of space in a shopping center.
Most shopping center space is long and skinney. They are like a bowling alleys – that’s what my practice in Rancho Cucamonga was like– that’s because the owner is trying to fit in as many tenants as possible and dentsits have the need for a limited amount of square footage.
LOCATION IN THE CENTER
Newer shopping centers usually won’t even let dentists be anywhere near that “Starbucks” - because dentists pay lower rent that most other retail stores, who pay a percentage of their proceeds along with their rent – and more importantly for us to remember – developers and owners do not think dentists actually draw people into the center, the way other tenants will.
Yep, I’d probably avoid shopping centers for a location for a dental practice. What do you think?