Retail Space: The New Frontier

April 1, 2011 No Comments

At one point in our industry, finding the right space at the right price was often the most difficult part of opening an indoor Family Entertainment Center – harder in some cases than attaining the financing. Obviously, the more built-up areas, which have the highest populations and best demographics, suffered from this issue the most. As recently as two years ago, in the northeast corridor (Philadelphia to Boston) new clients were routinely directed away from retail space and toward light industrial warehousing for their FEC location, as the prices being asked for retail space bordered on the absurd: $25-$50  a square foot.

Traditionally, an indoor Family Entertainment or Children’s Entertainment Center has relied on word of mouth, strong Web site marketing and incentive-based local advertising to attract customers. This usually works in most cities and towns, as there is limited competition and an FEC or CEC is a unique and welcome addition to the community. Customers will return to a facility on an ongoing basis after they once find it, if it is accessible, well run, priced reasonably, is clean and is a positive experience for both the kids and parents.

However, out-of-the-way, less expensive non-retail locations usually come with a price: construction is significantly more expensive, as these industrial zones are “vanilla boxes,” where HVAC, rest rooms, flooring, walls, etc. must all be built by the tenant. Further, in many cases, these locations must go for a “use variance,” which can add three to six months to the approval process, prior to construction, as well as the fees for attorneys, architects and experts, which are needed for these approvals. In addition, many of these industrial parks have severe limitations on signage and facades – thus, from the outside, your FEC/CEC may look just like the Plumbing Fixture Outlet next door and your road signage might be a 1-foot-by-4-foot-long strip on a monument sign – one among many others.

A good retail location has always been the preferred “space of choice” for a myriad of reasons: who can beat a well-known, centralized location, with strong signage, constant drive-by and walking traffic, in a convenient and accessible mall or strip mall, with good parking? Further, in many cases, the site is already approved for your use and many of the expensive build-outs are in place: HAVC, lighting, utilities, etc.

But, in the past, there was always a big “however,” and the “however” was: landlords charged exorbitant lease rates, common area charges were high, and landlords would rather not lease to a “start-up” concept, and definitely would put forth prohibitive lease terms, to protect their investment. Remember, in those days, they were in the driver’s seat in any negotiation.

The Recession hit with a vengeance in September, 2008, and for the next two to five years, things would never be the same in the business world. “Other people’s problems are other people’s gains” is an old saying, but one that rings with a strong grain of truth: opportunities become apparent to those who look.
One of the biggest results of the recession hitting is the unprecedented amount of retail space that has now become available. Drive down any commercial road in your town or city these days and you will see a significant number of “Space Available” and “For Lease” signs in front of almost every mall or strip mall you pass. Like any business model, when supply is way up, prices will come down, and there is a ton of supply these days.

For the new or existing FEC or CEC operator, this presents a unique windfall opportunity: In the last 20 years, never has retail space been more available, and better still, been “offered” by landlords at below market rates; nor have the “hidden” advantages been more prevalent: more tenant improvement credits offered; lower or no security deposits required; free rent periods; flat lease rates and no or limited personal signatures required, and this is being offered for “Retail Space” locations. In some areas, retail locations have lowered rates by as much as 50 percent, with landlords ready to enter into long-term leases, at extremely favorable terms to tenants. In some cases, landlords who, in the past, would not even hold serious discussions with business owners they consider “start-ups” (i.e. the new, independent family entertainment center operator), are soliciting them with incentive-laden deals.

I will use as an example my own personal situation: Over the past two years, I’ve had the opportunity to become a partner in a large FEC in Indianapolis, Ind. My partner is Justin Snow, who is the Long Snapper for the Indianapolis Colts professional football team. Our facility, known as SNAPPERZ, enjoys a great reputation as one of the premier FECs in the Indianapolis city loop.

After a year in operation, we were approached by a commercial real estate agent representing a mall in Lafayette, Ind. This mall, Lafayette Square, had been in existence for close to 35 years and had suffered lean economic times. The mall had recently been taken over by pro-active owners who were looking to fill up the 40 percent of vacant space at the mall. Of note also was that the mall was in a nice section of town and was in a fairly good state, with the facades, grounds and parking areas kept up in fine condition.

Our expansion plans were to open a second location in about 18 months. What we were presented with was the proverbial “offer we couldn’t refuse,” – it was just too good to walk away from. Thus, in December 2009, we opened SNAPPERZ 2 to strong business, beginning from day one. We were offered unbelievable lease terms and conditions for 15,000-square-feet in a good, retail outdoor mall setting. How could we not act on this offer? Did it help greatly that we had an existing location with name, brand, logo and business model in place? Yes, of course! Did the notoriety of a professional athlete add to the marketability of our concept? Yes! Did we have the financial capability to make this second location happen? Not really at first, but we managed to find a way to make it happen.

While my personal example may be at the extremely positive end of the spectrum, it demonstrates in practical terms what is happening in our industry today: solid, high traffic retail space is readily available, in all parts of the country, and landlords are going to significant lengths to seek good tenants these days.
In my consulting, I am steering clients towards retail these days, not away. If you are in the beginning stages of an FEC project, take that ride down the commercial roads in your town and see what is available. You may be pleasantly surprised at the amount of retail space for lease. If you can find an experienced commercial real estate broker, use them. They are just as hungry these days as the landlords. They will work very hard for you if they feel that you are focused, professional and can seriously carry out your plan.

If you are an existing FEC or CEC and you are in the middle or toward the end of your lease, do not be afraid to approach your landlord to renegotiate your present lease.

This is happening all the time, we are presently in the middle of this at our Indianapolis location. I would also recommend that you search in your area for what is being offered for similar-sized retail space. Remember, you are an existing, proven entity. An eager landlord may be very open to wanting you to relocate to his space, as you are bringing success with you. What may be offered in free rent, tenant improvements and the savings in a lower rental base might significantly off-set the loss of security or fees associated with an early withdrawal from your existing lease. You can present your potential new landlord with your costs to relocate up front and let him make the choice to pay to move you, you may be surprised at what is possible. The point is: go spend the time and look at what is out there, a few hours driving around and some serious discussions and negotiating may put your existing business on a whole new positive path. Good luck exploring the new frontier. -

(David Wilson is president of both Wilson Design & Consulting Group and All Kids Play. Reach him at (888) 652-7318, www.wilsonfecdesign.com or www.allkidsplay.com.)

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