Hi all. With retail property, size and other factor's are important. What is a reasonable size to start with to get a wide variety of tenants and at the same time also affordable? The retail I am currently looking at is about 60sqm retail so not too sure is this too small or just nice. Thoughts appreciated.
From my non professional viewpoint - commercial doesn't quite follow resi sizing and pricing. It's very dependant a lot of other factors. One size doesn't really fit all, whereas in residential you can almost always assume a larger size in land given all other variables are similar will provide a better $ outcome.
this is a bit like saying how long is a piece of string. you need to think about your desired outcome and strategy a little more deeply and provide more information on where you are looking so one can deduce who may be interested and in what. is it a hair dresser or perhaps a clothing store? is it a pizza place or furniture store? is it on high street or is it in a shopping centre?
Are you designing a shopping centre on a block of land and seeing what size the units you build will have the widest appeal ?
Each user has different requirements (or metrics). A hole in the wall coffee shop can operate from 5m² and remote 10m² storeroom. Whereas general retailers may live in a 80-120m² premises. More importantly, 6m shopfront is often the minimum for many retailers as a gunbarrel configuration doesn't work.
Good question. I haven't thought about this too much. The property I'm looking at now is about 55sqm to 60 sqm currently leased to a speciality coffee shop. Just thinking of alternative uses if they were to pack up and leave
Whats wrong with a long and narrow shop? Are you saying if size is the same, short and wide shop is better? Any reasons for this?
Unless you're selling spaghetti, many retailers attract punters with good visual merchandising in a shopfront, even foodies want space for a front counte, displays, signage, POS.
Retail Zoning, ITZA & Zone A Rate & Property Rents - Meaning & Application Read this it has been a few years since I did retail rental calculation for frontage vs rear of the shop. But basically the front of a shop $m2 vs the rear is quite different due to the shoppers. When you purchase retail you want frontage . A note on zoning | Beckett and Kay
The rule applies everywhere in the world But you do need to adjust the % for the specific location Read below
ZONING OF SHOP UNITS • Retail property (other than large stores, department stores, variety stores and food stores which are valued on the overall basis) are zoned. • Zoning as a basis of valuation is borrowed from my two valuations. • It has been in use since the 1950’s. • It is a total hypothetical basis of valuation because it assumes front part of shop is twice as valuable as next section, etc. • It applies the concept of halving back whereby each zone is given a name, i.e. A, B, C, D and remainder. • In England, 20-foot zones (except Oxford Street- 30-foot zones) • In Scotland, 30-foot zones • Zoning is an arithmetic tool for comparison • Can compare ‘long thin’ shop with ‘short fat’ shop ZONING – ZONES A, B, C etc. TO GET ITZA See the previous two examples of a ‘long thin shop’ and a ‘short fat’ shop. Both are the same total size, 1,200 sq ft BUT when zoned the figures derived for these two shops, Shop Unit X and Shop Unit Y are very different. SHOP X ZONE A 20 X 20 = 400 X A/1 = 400 units ZONE B 20 X 20 = 400 X A/2 = 200 units ZONE C 20 X 20 = 400 X A/4 = 100 units Area in terms of Zone A (ITZA) = 700 units SHOP Y ZONE A 30 X 20 = 600 X A/1 = 600 units ZONE B 30 X 20 = 600 X A/2 = 300 units Area in terms of Zone A (ITZA) = 900 units VALUATION When valuing retail shop property we express the ground floor area IN TERMS OF ZONE A (ITZA). SHOP X and SHOP Y expressed in terms of Zone A units are as follows:- Value Shop X ITZA 700 units x £100 = £70,000 per annum Value Shop Y ITZA 900 units x £100 = £90,000 per annum For convenience the ITZA figure is used when valuing a retail unit and also when devaluing the rent of a retail unit as below:- If rent of SHOP X is £70,000 per annum what is the Zone A rate? £70,000 + 700 units £100 Zone A If rent of SHOP Y is £90,000 per annum what is the Zone A rate? £90,000 + 900 units £100 Zone A COMPOSITE ITZA’S Retail units are often arranged on more than one level sometimes with basement, first, second, third floors etc. Each of these ancillary levels can also be expressed in terms of Zone A units such that you can derive a composite ITZA – see example below: – G/F say 1,200 sq ft (sales) ITZA 700 units F/F say 1,000 sq ft (stock) @ say A/20 = 50 units 2/F say 500 sq ft (staff) @say A/40 = 12.5 units COMPOSITE ITZA 762.5 units The composite Zone A can then be used to make valuation of retail units and devaluation of retail units much simpler- see below. Valuation 762.5 ITZA units x £100 Zone A = £76,250 pax Devaluation £76,250 pax / 762.5 ITZA units = £100 Zone A MIRROR ZONING Not all retail units have frontages which are in line with the adjoining units – some have frontages which are oblique or irregularly shaped (with pop out shop fronts). In these cases is it customary but not mandatory to adopt what is called ‘mirror’ zoning whereby the measurements taken and the areas calculated for each zone (A, B, C etc) replicate the front Zone A so that at each of the left hand and right hand edges of the shop you measure back 20 foot (if it is a 20 foot zone) and then calculate the area of that zone doing the same in Zones B, C etc. NATURAL ZONING SOME SHOPS HAVE UNSUAL PHYSICAL CHARACTERISTICS IE. CHANGE IN FLOOR LEVEL (STEPS UP OR DOWN) IE. NARROWING OF WIDTH / PINCH POINT In any of the above cases it may be appropriate to abandon conventional zoning in 20 foot zones A, B, C etc. on the basis that at the point at which the unusual physical characteristic is positioned within the shop that a new zone should apply at that point. For instance, if a shop a change in floor level after say 35-foot depth you have two options: 1. Either start Zone C at 35 feet 2. Or adjust usual A/4 rate for Zone C to A/6 The natural zoning approach starting Zone C at 35 feet would be favourable to the tenant whereas the landlord would prefer to treat the first 15 feet of Zone A at normal rate (A/4) and then the remaining 5 foot of depth of Zone Cat say A/6. FOR THE HIGHEST RENT THE LANDLORD ARGUES FOR DEDUCTION TO THE AFFECTED ZONE A ONLY FOR LOWEST RENT THE TENANT ARGUES FOR %AGE DISCOUNT OFF WHOLE SHOP RETURN FRONTAGE Where a retail unit occupies a corner position it may have glazing on part of the side elevation and we refer to this as return frontage (R/F). JEWELLERS IN PARTICULAR LIKE CORNER SHOPS WITH R/F OR SPLAYED FRONTAGE If the returned glazed frontage runs for the entire length of the shop, then it will be appropriate to apply a percentage additional to the value of the whole shop. Dependent on the quality of the return frontage (is it facing other retail units – does it substantially add to the prominence of the shop – is there a secondary entrance from the return frontage elevation). One might add 10% or 7.5%, 5% or 2.5% to the total rental value of the ground floor to reflect the benefit of the return frontage. In a situation whereby, the glazed return frontage is partial (i.e. only part of the shops return frontage benefits from glazing and the rest is a solid structure an addition to the rental value should be made for the area of the shop which benefits from the glazed frontage). So, for example, if the first 10 feet of Zone A had a glazed return frontage then an addition of 10% / 7.5% / 5% / 2.5% would be added to the first 10 feet only. When negotiating for a landlord or for a tenant in relation to the value (or otherwise) of return frontage the following positive arguments could be advanced – R/F increases prominence of the shop – customers can see inside the shop thus enhancing the tenant’s opportunity to attract more customers – the tenant has a greater opportunity to display their wares. The negative arguments would be: – – Most retailers now seek the maximum amount of linear wall space and so do not want a glazed return frontage because they could not rack against that frontage and so lose linear wall space. – The dressing of shop windows is time consuming and costly – The insurance premises are higher for a unit with a glazed return frontage DISPROPORTIONATE FRONTAGE TO DEPTH (FTD) Where a shop has a large frontage but limited shop depth it will be regarded as having disproportionate frontage to depth for which an allowance (discount) might be made. REMEMBER SHOP Y- Frontage 30ft Shop Depth 40ft – ITZA 900 units Is it really worth £90,000 pax when SHOP X (700 ITZA) is only £70,000 pax? Does SHOP Y have FTD, i.e.. is it penalised by the Zoning method of valuation? SHOP Y – Ratio 1:1.5 (Whereas SHOP x 20 x 60 is ratio 1 :3) % age of ITZA to total G/F SHOP X is 58.33% (700 /1,200) % age of ITZA to total G/F SHOP Y is 75% (900/1 ,200) If FTD applies, then make an allowance (discount) Say 10% for FTD so true rental value of SHOP Y is £81,000 pax ALLOWANCES (DISCOUNTS & ADDITIONS) We refer to all adjustments (discounts/additions) as allowances. Allowances can be made for any variation from the norm. PHYSICAL issues- R/F, FTD, Quantum, irregular shape, hard frontage LEASE issues – restrictive user, restricted alienation, long lease term There is case law on every issue & evidence to support/undermine
Although I studied retail rental valuations many years ago I still remember the theory. You can check this out yourself for the shop you are interested in when you are free . You do that by watching and counting the shoppers every metre of the depth of the shop. You will soon work out the bulk of the shoppers stay at the front of the shop. When you finish this study report back on PC as there are probably many readers who are interested in Melbourne retail rentals (as a valuation student we all had to do this exercise )
