Brick-and-mortar retail stores are making a comeback after a prolonged onslaught from online sellers. Consumers’ desire to see, touch and try products, assess their quality and enjoy the in-person browsing experience is creating a more balanced retail landscape where physical stores can thrive.

As physical stores rebound against the online sellers, demand for retail space is growing. Here we discuss why choosing the right retail location is crucial and the various factors to consider, including lease terms, long-term growth potential and the costs involved.

Why picking the perfect retail space is central to your success

Experience beats convenience - but only if you’re in the right place

After prioritising the convenience of online buying, many consumers are now favouring the experience that in-person shopping can bring. However, stores must be in a good location. Stores in vibrant, high-traffic areas are well placed to deliver the experiential edge that customers crave.

The right location enhances your brand

In physical retail, your location can tell customers a lot about who you are. The surrounding businesses and culture can become an integral part of your brand story. That makes it beneficial for certain retailers, particularly lifestyle and fashion brands, to find a location that resonates with their demographic.

Location can be a powerful marketing tool

Online, your store is invisible unless you promote it. A physical store, on the other hand, naturally markets itself. A good location can give you visibility and put you directly in front of your target market. That can transform foot traffic into loyal customers without a heavy marketing spend.

What to consider when choosing a retail space

Picking the perfect retail space is vital, but there’s a lot more that goes into that decision than just location and square footage. While those factors matter, it’s essential to look closely at the financial and legal practicalities of the deal.

Ownership or lease?

Buying a retail space

To buy a retail premises, you’ll typically need a deposit of between 20 and 25%. That should enable you to secure a commercial mortgage. It’s also possible to buy an established business. There are several advantages of purchasing a retail space:

Every mortgage payment you make builds your equity and wealth
There’s a certain amount of cost stability, as you don’t have to worry about unexpected rental hikes
You can make changes to the property without requiring approval from a landlord
The premises can accumulate in value
You can rent out the property and generate an income if you decide to relocate or no longer want to run the business

There are also downsides to buying a retail space, including high upfront costs, less flexibility to move or upsize, and responsibility for maintenance and repairs.

Leasing a retail space

Alternatively, you can choose to lease a retail premises. You can sign a lease that lasts anything from one to 10 or more years, and you’ll pay the landlord monthly rent for use of the space. The benefits include:

Lower upfront costs, making it more accessible, and leaving more money for stock, marketing, employees and other expenses
It’s often easier to move, for example, if you want to upsize or there’s a shift in local footfall patterns
You can access locations that may be out of reach if you bought the property outright

On the downside, rent reviews and lease renewals can increase your monthly costs. You also have less control over renovations, and every rental payment you make is pure expense.

Understand the lease terms

If you decide to lease a shop, as the majority of UK retailers do, you need to understand exactly what you’re signing and the implications now and in the future. For example:

How long is the lease term?
What are your renewal options?
Are there any exclusivity clauses that prevent competitors from leasing in the same space (in a shopping centre, for example)?
Is there a break clause that allows you or the landlord to terminate the lease early?
Are there any restrictions on the hours of operation or product categories?
Will the landlord contribute to your build-out costs?
How often and on what basis will the landlord conduct rent reviews?
Are there any restrictions on the alterations or improvements you can make to the store?
What are the dilapidation implications?

With so many factors to evaluate and negotiate, it’s always wise to seek the guidance of an experienced retail lease advisory service before making a commitment.

Consider the long-term growth potential

Buying or leasing a commercial property for retail can be an expensive and time-consuming process, and it’s probably not one you’ll want to repeat in a hurry. Therefore, when choosing a retail location, it pays to find a site that’ll support your needs now and in the future.

You don’t always know what’s around the corner, but thinking about how your business might look three, five and even 10 years from now can help you find a longer-term solution. It’s worth thinking about:

Future growth - Does the store have the floorspace you need to allow you to expand?
Developments in the area - Are there any trends or expected changes in your chosen location, whether it’s high street or out of town, that could harm or improve the area’s foot traffic and appeal?
Reputation of the landlord - Before signing anything, find out as much as you can about the landlord. Asking other current or previous tenants about responsiveness, maintenance standards, flexibility and property management can be invaluable.

Be aware of the costs

When choosing a retail space, the monthly rent or purchase price is not the only cost to consider.

If you are leasing a space, you should also factor in:

The service charge to cover the upkeep of shared areas, building maintenance, amenities, security and cleaning
Building insurance is usually paid by the landlord, but you may have to contribute as per the terms of your lease
Utility bills
Business rates
The cost of the fit-out and any alterations - the tenant usually pays but the landlord may provide a contribution as an incentive to sign a lease
Legal and advisory fees for lease negotiations and drafting
Stamp Duty Land Tax may be payable depending on the amount of rent you pay over the lease’s term
There may also be additional costs to consider, such as parking fees, waste management and signage

If you are buying a retail property, the costs to consider include:

Stamp Duty Land Tax payable on properties over a certain value
Building insurance
Legal fees for administering the purchase
The fit-out costs to adapt the space to meet your needs
Business rates
All maintenance and repair costs
Property management fees if you hire a third party to look after the building on your behalf
Fees for local authority services such as parking and waste disposal

There are numerous costs associated with renting or buying a retail space, and you must factor them all in when setting your budget.

Find and manage your perfect retail space with Eddisons

At Eddisons, our retail property consultants provide expert advice and practical solutions for every aspect of your premises. That includes a retail property agency and auction service to help you identify shops to buy and lease. We also have leading property management and insurance specialists, lease advisory teams and building consultants to assist with surveys and dilapidations.

With more than 30 offices throughout the UK, we combine nationwide coverage with unrivalled local knowledge to help you find and manage the perfect retail space. Find out more about our retail property services and get in touch to discuss your requirements with our team.

Picking the Perfect Space For a Retail Business