Lease Renewals and the Fading Anchor

Ms. Real Estate

—Weighing My Need for an Anchor Plan B

  Dear Plan B, Your first option is to ask for a minimal rental increase, or better yet keep the rent flat for the next several years. It’s not easy to provide a definitive answer to your question, since I do not know how well your overall center is doing. If your occupancy is high — 95 percent or better — you will want to do what it takes to keep your grocery. If it is moderate or low – under 65 percent – you might consider other options. For example, if your center is located in a neighborhood primarily serving a specific ethnic group, i.e. an Asian or Hispanic market, you might wish to replace your current anchor with an anchor that is geared to these markets. For example, Ranch 99 caters to the Asian market, while Northgate specializes in food and beverages that appeal to Hispanics. As you are no doubt aware, groceries are facing increasing competition on a daily basis, and not just from the Costcos and Targets but also drugstore chains that now provide a wide range of food products. On the other hand, if the entire center is not doing well, you might want to consider a change of use, in which case having the anchor’s lease coming due within the next 18 months will be a major benefit. One option is a medical center that will also include office-related medical uses. With the increase in the number of insured patients through the advent of Obamacare, there will be an increasing demand for a wide range of medical facilities in the ‘burbs, closer to the population base. Such facilities not only provide more convenience to the patients, but at far less cost than can be provided by more distant hospital facilities.