Anchor tenant in commercial real estate

Today, the term “anchor tenant” has become well-established and generally accepted among professionals in the commercial real estate market. Anchor tenants are one or more key tenant companies in shopping centers that meet certain criteria.

Scope of activity of the anchor tenant

As a rule, retail companies are anchor tenants. In most cases, these are large chain supermarkets that specialize in food and related products.

In Russia, the anchor tenants are usually Magnit, Pyaterochka, Atak/Auchan and others. In Spain, for example, these are Mercadona, Lidl, Supercor and others.

These do not necessarily have to be trading enterprises dealing exclusively with food products. Other specializations are also possible. For example, the global brand in the field of construction and repair Leroy Merlin or European sports stores Decathlon. Naturally, the infrastructure around such an anchor tenant will most likely be different from the infrastructure around a grocery store.

Network tenants

It is easy to notice that anchor tenants are most often network companies. In fact, any commercial real estate owner dreams of having such clients in his shopping center or street rental store. This is because network organizations are known for their reliability.

They:

• sign contracts for a long period,
• agreements are rarely terminated.
• have sufficient financial resources to make timely payments.

Examples of such tenants in Spain include retailers Mercadona, Carrefour, Consum and Caprabo; fast food establishments such as McDonald's, KFC and Burger King; as well as Marriot and Sheraton hotels.

Of course, there is always high competition between landlords to attract a high-quality network client.

Area occupied by key tenant

An anchor tenant usually occupies a significant portion of the area of ​​a shopping and entertainment center, usually from 10% to 15% or more. Such tenants seek to enter into special agreements with the owners that allow them, if necessary, to increase or decrease their space in the first place, depending on the success of their business.

Obviously, the anchor tenant is given one of the best places in the complex, but taking into account its features. Owners, of course, are interested in renting out other premises at a reasonable price, so they usually consider how to optimally distribute the flow of visitors.

Attracting visitors as an anchor tenant

The main benefit of an anchor tenant that sets it apart from other tenants in the same building is its ability to attract traffic. It is the anchor tenant that receives the main flow of visitors, which helps attract customers to other retail outlets along the way.

However, this applies primarily to a specific target audience and not to all types of businesses. For example, it makes more sense to open fast food establishments such as McDonald's, Burger King or KFC near a university rather than upscale Michelin-starred restaurants. The same thing happens in shopping centers: the anchor tenant determines the main contingent of visitors, and surrounding companies adapt to this audience.

Practical use

For investors considering commercial real estate investments, researching the anchor tenant situation is key. It is important not only to find out whether such a tenant is present at the property, but also to make sure that he does not plan to leave it in the near future.

Many tenants were unable to successfully overcome the lockdown and have not yet fully recovered, which affects their ability to pay rent at the same level as restrictions continue. Therefore, investors planning a real estate transaction should carefully examine how the tenant met its financial obligations during the period 2020-2021.

Signs of a successful anchor tenant may include:

• If there is a long line at the registers during peak hours, even with many cashiers, this may have a negative impact on the customer experience, but it is an excellent sign of a successful store and therefore beneficial for commercial real estate investors.
• The growth of the point of sale and the introduction of new technologies, such as self-pay stations, which are now becoming more common.
• Regular updating and expansion of the range of goods on the shelves is a positive sign. In contrast, if a business begins to reduce its inventory, this may indicate its intention to leave its current location.

Usually, finding spacious premises for a large supermarket is not an easy task, since the supply of such facilities on the market is limited. Therefore, anchor tenants often enter into agreements with the owners to participate in the project at the construction stage of the building. These agreements are usually long-term in nature.

It is important for a potential commercial real estate investor to carefully examine how long a particular business has occupied a key area. Frequent changes of tenants are a warning sign indicating possible problems with the property.

Signs of possible changes in the situation with anchor tenants may also include indirect factors not directly related to the property. For example, news about mergers and acquisitions of the main company, its financial statements of profit and loss, and announcements of expansion or reduction of staff.

For example, in January 2022, New Balance, a company engaged in the production and sale of sports shoes, unexpectedly announced the closure of several dozen of its specialized stores throughout Spain. However, not all premises owners were notified in advance of the end of the lease; some only found out about it through the media.

This has had a significant impact on the commercial real estate market. For example, in the center of Barcelona, ​​a property worth 5 million euros was withdrawn from sale due to the closure of the tenant's store. This highlights that having a chain store does not guarantee stability for an investor. Therefore, it is important to actively monitor tenant plans and their possible changes.

An investor needs to consider a lot of information about such organizations. However, the presence of a reliable anchor tenant in a shopping center, despite possible nuances, can be a sign of a successful investment in commercial real estate next to it. To find out which commercial properties with anchor tenants are available for investment in Spain, contact our specialists.