Neighborhood & Specialty Shopping Centers Descriptions and Financing

Neighborhood shopping centers are usually strip centers of 100,000 square feet or less with traffic generated most often by a food store and a drug store. The food store and, to a lesser extent, the pharmacy generally are destination shopping stores that pay lower rent but generate high traffic. Local tenants pay higher rents, have a higher profit margin but lower sales per square foot, and rely somewhat on impulse buying. It is interesting to note that in the 2001 edition of the study to define the 10 types of retailers most often located in neighborhood centers, the second most noted retailer was the supermarket (food) store. This retailer had fallen to tenth position by 2004. Restaurants with and without liquor service as well as fast food carryout restaurants moved significantly up the list by 2004, reflecting the trend toward increased utilization of out of the home eating. In addition, more and more food retailers gravitated in the late 1990s toward fewer but larger stores often located in regional and super-regional centers. The mix is similar, but not identical, to that of the community shopping center.

Specialty shopping centers generally occupy less than 50,000 square feet and are dominated by local retailers. Many are located in business areas such as office complexes and hotel or convention areas. Most feature restaurants and retailers with high profit margins that sell high-fashion clothing, costly gifts, or books. The shops generally are small and have limited hours of operation. Most of their sales are made during lunch hours, the period immediately after work, and—if the shops are open before normal office hours—in the morning. The newest popular specialty shopping areas are located at the destination points of rapid transit systems in cities like Washington, D.C., Atlanta, and San Francisco. The high-traffic hours before and after work generate the bulk of the sales.

Specialty centers do not rely on individual retailers to generate traffic. Instead, they rely on the location or surrounding area to generate pedestrian shopping. Tenant turnover tends to be high because of the extremely high rents and, consequently, the high profit margins the tenants must build into their operation. Most specialty centers are tailored to convenience and impulse shopping, which is likely to be curtailed in times of economic distress.