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Small spaces? Fat chance

Mike Sion

Mia Quinn counts herself lucky to have

been able to find a seemingly ideal, 1,500-

square-foot retail space in Reno in which

to relocate her stationery, gift and invitations

store, Name Droppers.

Quinn’s small business had leased space

for 20 years in a little retail plaza on West

Plumb Lane and Arlington Avenue.

Wishing to capitalize on the rapidly growing

south Reno area and situate her business

nearer to more retailers and major

traffic, Quinn jumped at the opportunity

to rent space in Magnolia Village, a newly

constructed plaza at the intersection of

Lakeside Drive and South McCarran

Boulevard.

A friend who opened a salon in

Magnolia Village tipped off Quinn about a

space that was available. “It was just the

luckiest, flukiest thing in the world,” says

Quinn, who intends to reopen for business

by the end of September, weathering a

two-month hiatus after her lease at the

former site expired.

“There aren’t a lot of spaces open for

independent retail,” Quinn says of the

Truckee Meadows’ commercial real

estate market.

Indeed, the local vacancy rate for

“line-shop space,” areas for small businesses

(typically from 1,000 to 2,000

square feet), sits at 6.4 percent.

For landlords who lease space, such a

vacancy rate “is considered to be a very

healthy retail market,” says Roxanne

Stevenson, vice president of Grubb &

Ellis Nevada Commercial Group.

But for family-owned mom-and-pop

businesses as well as national chain tenants

(such as Starbucks Coffee or

Subway Sandwiches) that traditionally

occupy line-shop spaces, the three cardinal

rules of retail success location,

location, location have gotten more

difficult to follow in the Reno area.

“There has been a trend downward in

the vacancy rate over the past few years,”

says Kelly Bland, vice president, retail

properties, for the Reno office of Colliers

International, a commercial real estate

brokerage. “Small spaces in good locations

are in tight supply,” he says of the hot

commercial strips around Meadowood Mall

in burgeoning south Reno.

One reason for the dearth of space by

Meadowood and in other local hot

zones in new retail centers or along busy

traffic routes is that shopping-center

developers have not been building as

much line-shop space as in the past,

Bland says.

“Grocery-anchored projects being

constructed today may have 20,000 to

28,000 square feet of combined lineshop

space. Some centers in the past

had as much as 40,000 square feet of

combined line-shop space. This is a wise

decision, since there are not as many

small business users as there were in the

past. Now you see a lot of the services

inside a grocery store that used to be

outside banking, dry cleaning, video

rental, pharmacy, deli, bakery, photo

developing, et cetera.”

Developers also are shying away from

building new centers in the Truckee

Meadows, due in part to leaps in land

prices, Stevenson says. Acreage suitable

for shopping centers rose from $4 to $5

per square foot five years ago to $7 to

$12 today, she says. Impact fees and

time-consuming governmental approval

processes also dissuade developers from

building shopping centers, she says.

“Additionally, even developers of traditional

grocery-anchored shopping centers

construct a much smaller amount of

‘in-line’ or ‘shop space’ now compared to

the development styles of 10 years ago,”

Stevenson says.

Reasonably priced smaller spaces do

remain in good supply in unanchored

strip centers, locations outside retail

hubs and older properties such as

Moana West Shopping Center and

Shopper’s Square, Stevenson says. But a

shortage of moderately priced, small

retail spaces exist in class ‘A’ anchored

shopping centers and new developments

in the booming south Truckee

Meadows, such as Redfield Promenade,

Firecreek Crossing and Southtowne

Crossing, she says.

Colliers tracks the local market for

line-shop space spaces smaller than

20,000 square feet. At the end of June,

the Reno area had about 307,000 square

feet of line-shop space available for rent,

of the area’s approximately 4.8 million

square feet.

Bland says the low vacancy rate

means higher monthly lease prices

$1.27 a square foot in shopping centers

anchored by major retail businesses

(such as supermarkets); $1.18 in unanchored

areas; $1.50 for new centers. The

rates don’t include the so-called “triple

net” costs taxes, insurance and common-

area expenses that can add 25

to 30 cents per square foot, and about 50

cents for new centers.

Rates for small-shop space in some

newer, class “A” developments can be

as high as $2.75 per square foot,

Stevenson says.

“It can make it challenging to find

good locations, and in retail, it’s all

about your location,” Bland says. “It is

forcing many businesses to look at the

new growth areas of town where the

new centers are being constructed.

However, the business must be able to

survive off of a neighborhood-type location.

Some businesses need a larger

draw and need to be patient for a location

to open up in a central, what we call

‘in-fill,’ location.”

Bland counsels startup businesses,

small retailers and would-be franchise

owners to heed the “location” rule for

business success.

“Unfortunately, it appears that the

costs will continue to go up for tenants

as prices try to keep pace with the

increased cost to construct new centers,”

he says. “However, it is more important

that retailers find good locations and

pay the price that is required. It is much

more important that they consider that

volume they can generate, and calculate

their rent as a percentage of sales generated,

as they compare locations.”

Even with a low vacancy rate, there

always will be turnover in the line-space

market, Bland adds. “People need to

have a good broker who is aware of the

spaces coming to market before the general

market knows of them.”

Stevenson emphasizes that small business

owners must thoroughly understand

their customers. Some businesses need to

be situated near their customers’ homes,

while other businesses require heavy foot

traffic and proximity to complementary

businesses that provide cross traffic, she

says. Some businesses are “destination-oriented”

and don’t need to be set at busy

intersections or bustling shopping centers,

Stevenson says, but some businesses need

to be set amid large populations of daytime

workers, or in dense residential developments,

or among specific demographic

groups to which the businesses cater.

“Sometimes, rent is one of the smallest

overhead costs for a small business

and making a decision based on rent

alone can be fatal,” Stevenson says. “I

have seen businesses locate in an inferior

location because the occupancy costs

(rent, common area) were only $200 per

month less overall and ended up having

to close.”

Even with a smaller space and slightly

higher rent, Mia Quinn is happy her

friend in Magnolia Village told her

about the chance to move into the new

retail center so she could position her

business amid the population growth of

south Reno.

“After 20 years on Arlington I never

thought I’d move,” Quinn says. “I went

to see the new spot and it seemed like a

win-win situation. The exposure there

on that corner will be so much better

than on Plumb Lane. Think of how

many people drive down McCarran.”

Quinn worries what effect the

address change could have on some

longtime customers. Also, the store will

have about 500 square feet less room

and slightly higher rent. But the new

location’s advantages outweigh concerns,

she says.

“It was just time for a change,” Quinn

says of relocating Name Droppers. “It’s

a changing city, and retail is a constantly

changing entity. It just was time for

something different.”


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