Understanding Commercial Leasing Costs: Average Price per Square Foot for Mall Spaces

The cost to lease commercial space in a mall can vary significantly based on a multitude of factors such as location, market conditions, and the presence of anchor tenants. In this article, we will explore the average price per square foot to lease commercial spaces in a mall, with a focus on the specific circumstances you described.

Location: The Most Important Factor

Location is crucial in determining the average rental cost for commercial spaces in a mall. This principle remains true even when comparing spaces leased to small businesses. For instance, one business in your mall pays a significantly higher rate of 42 per square foot plus NNN (net, net, net), while another pays 15.81 per square foot with no NNN. The key differentiator here is the overall appeal and foot traffic to the area, which supports the higher cost of the anchor tenant's space.

Historical Insights: The Lehman Bros. Collapse

Back in the spring of 2008, before the financial collapse caused by the Lehman Brothers failure, I had the opportunity to investigate investing in a major regional mall in the Eastern United States. This mall featured several hundred thousand square feet, with more than a hundred tenants and several major anchor stores, including Sears and JC Penney. What was most surprising was that the major anchor tenants paid no rent. They were given substantial space as a form of advertisement and to help attract customers to the mall, thereby benefiting the smaller tenants who paid normal rent.

The Complexity of Determining Commercial Leasing Costs

While the location is a key factor, it is far from the only one when it comes to determining the leasing cost for commercial space in a mall. The clientèle, the presence of anchor stores, and the location within the mall all play significant roles. Generally, leases will include a flat rate per square foot, with an additional clause allowing the landlord to receive a percentage of sales. This motivates the landlord to maintain common areas, parking, restrooms, and overall customer flow.

Variables That Impact the Price per Square Foot

The cost per square foot can vary widely depending on the city, neighborhood, and even specific locations within the city. However, there are common variables to consider before determining the commercial space price per square foot. These include:

Location of the Mall: The overall market and local economy play a significant role in determining the rental cost. A prime location with high foot traffic will naturally command a higher price per square foot. Location within the Mall: The specific area within the mall can also impact the cost. For instance, the cost of space in a prime location with high visibility may be more expensive than space with minimal foot traffic. Anchor Stores and Neighboring Retail: The presence of well-known anchor stores and the types of nearby businesses can significantly influence the cost. A space next to a highly visited anchor store may be more valued. Market Dynamics: Economic and market conditions can also impact the cost, especially during times of changing tenant footfalls and market competition.

Conclusion

In conclusion, the average price per square foot for leasing commercial space in a mall is a complex and dynamic cost that depends on various factors. While there are no universal prices, understanding the location, market dynamics, and tenant profile can help in determining a realistic cost. If you are considering leasing space in a regional mall, it is important to consider all the variables to ensure that you are getting a fair price for the space you lease.

Keywords: commercial leasing, mall spaces, square foot pricing