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How to value Commercial Property: Convenience Food Stores

Posted by Colliers on 3rd March 2022 -

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Matthew Hobbs, head of the UK Retail Lease Advisory team, explains how convenience food stores differ from other retail assets and why specialist advice is needed when acquiring, selling stores or negotiating leases.

In what way is the convenience food store sector different to other retail assets?

Whereas most retail properties thrive on being with a critical mass of other retailers in a destination retail location, the best convenience stores are those which dominate a particular trading position. The ideal is therefore limited or minimal competition from other shops. The sector has thrived in the recent economic turmoil and come out stronger than ever, while much of the retail market is only now starting to recover.

Why does the sector need specialist advisers?

In most cases, the rents payable have been the subject of index linked rent reviews which have been increasing since the start of the lease. The passing rents may therefore bear little resemblance to the open market rental values. Local transactional evidence is also rare, so considerable experience and skill goes into applying evidence from other locations to assess the underlying rental value of an asset.

Can you tell us about the process of advising on the value of a convenience store?

The issues can be broken down into locational factors, physical attributes and lease assumptions. 

Locational factors: Convenience stores thrive on being the best store in an easily accessible, densely populated area without excessive competition.  Accordingly, the key drivers of value revolve around the size and demographic profile of the population, competing stores and local issues such as prominence and ease of access for customers.

Physical attributes: Size is critical. In order for a convenience retailer to trade from 7am to 11pm, 7 days a week (without infringing Sunday Trading legislation) the sales area of the store must not exceed 3,229 sq ft. A store will need back-of-house space of around 35% of the total, so the maximum total floor area for a convenience store would be circa 5,000 sq ft. Not all locations are strong enough to support a store of this size. However, for the best locations, the largest store will be able to offer the best range of goods and attract customers from the widest area.  
Other key physical factors include a suitable amount of convenient customer car parking (on-street parking is sufficient for smaller stores), a good, regular layout (ideally on a single floor) and an attractive, modern building. Some operators are currently trialling “just walk out” stores in busy urban locations where electronic equipment monitors and charges customers for shopping items, without the need for cashiers or tills. These are at an early stage, but the main difference is that significantly higher ceiling heights (of c.3.85m) are required to house the electronic monitoring equipment. 

Lease terms: These cover a wide range of issues, including and not limited to, lease length, rent review provisions (OMR / RPI / CPI and the level of collars / caps), alienation / AGA provisions, sale restrictions, service charge liabilities and pre-emption rights.

What would be your message to anyone thinking of buying or negotiating a lease restructure on a convenience store? 

Convenience stores have never been straightforward, there are relatively few people who truly specialise in this field and can identify the opportunities for negotiation. 


Enquiries Team

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