Retail is one of the four major categories of commercial real estate (CRE) and it is defined by properties whose tenants are businesses that sell goods and services to customers through a retail store. While useful, this is a very broad description. Within the retail category, there are many different property types, each of which has their own operational quirks including power centers.
One of those property types, the power center, is the subject of this article. In it, we will define what a power center is, how they work, and how they compare to other common retail property types. By the end, readers will have the information needed to identify a power center and determine if an investment in one is a good fit for their own commercial real estate objectives.
At First National Realty Partners, we specialize in the acquisition and management of retail centers, which may or may not be power centers, that have grocery store anchor tenants. To learn more about our current commercial real estate investment opportunities, click here.
What is a Power Center?
A power center is a large, outdoor shopping center with the following attributes:
- Tenants: Category-dominant anchors, including discount department stores, off-price stores, wholesale clubs, with only a few small tenants.
- Size: 250,000 – 600,000 square feet over 25 to 80 acres of land
- # of Anchors: Three of more anchor tenants
- Anchor % of Gross Leasable Area: The 3+ anchor tenants lease 70% – 90% of the gross leasable area (GLA), which is why there is not much room left for smaller tenants.
- Typical Anchors: Category killers, such as home improvement stores (Home Depot/Lowes), discount department (Nordstrom Rack/TJ Maxx/Ross), warehouse clubs (Costco/Sam’s Club) and off-price stores (DSW, Dollar Tree).
- Trade Area Size: A typical power center serves a trade area of the surrounding five to ten miles.
- Location: Power centers are typically located in suburban areas.
To illustrate the attributes above, consider the Seven Corners Shopping Center in Virginia. It is an open-air power center with 575,000 SF of leasable area and a tenant mix that includes anchors like Giant Food Store, Ross Dress For Less, and Jo Ann Fabrics.
How Many Power Centers Are There In the United States?
Also according to ICSC, as of 2017 (most recent data available) there were 2,258 retail power centers in the United States with a combined 990M square feet of leasable area. Combined, these centers account for 13% of all retail gross leasable area.
Given the age of the data, it is safe to assume that there are more than 2,258 power centers at the time of this writing, but the broader point is this, there are a lot of power centers and they account for a large share of the total retail space in the United States.
How Do Power Centers Work?
As their name suggests, the idea behind a power center is to bring together a group of large, powerful, retail businesses to attract a high volume of shopping traffic. Ideally, this traffic is sufficient to fill the parking lot with customers who spend money at the tenant’s stores.
Types of Power Centers
By design, the power center definition above is broad. In reality, the design, layout, tenant mix, and finishes of individual centers are unique to the needs of the market in which they are located. For example, a power center located in a rural area may be a better fit for an anchor like WalMart, who is a general retailer and a one stop shop for necessities like clothes, electronics, and groceries. Or, a power center in an urban area (like New York) may be a better fit for specialty retailers like Best Buy or Dicks Sporting Goods, or even a movie theater.
The bottom line is that developers of power centers put a lot of thought into the right tenants, building materials, design, and size for each market. When they get it right, it is a hit with retail businesses who will want to lease space there (keeping occupancy high) and retail shoppers who will want to go there and buy things.
Power Centers vs. Other Retail Center Types
The defining characteristic of a power center versus other types of retail centers is the size and the number of anchor tenants. With this in mind, the bullets below highlight the defining characteristics of other common retail property types:
- Outlet Center: Much smaller than a power center at 50,000 – 400,000 SF and serving a larger trade area of 25-75 miles.
- Neighborhood Shopping Center / Community Center: Also much smaller at 30,000 – 125,000 SF and has a focus on convenience. Tenants may include drug stores and popular big box retailers.
- Strip Center / Strip Mall / Convenience Center: Less than 30,000 SF of space, with no anchor. Tenants usually consist of convenience stores and mini-marts.
- Regional Mall: Bigger than a power center with 400,000 – 800,000 SF, regional shopping malls usually have 2+ anchor tenants, 40-80 stores total and may also include an experiential component like movie theaters and restaurants. Typical tenants include freestanding big big box stores.
- Lifestyle Centers: A little bit smaller than power centers with 150,000 – 500,000 SF and upscale national-chain specialty stores with dining and entertainment in an outdoor setting. May include both “inline” tenants and tenants located on property outparcels.
From a real estate investment standpoint, one of these commercial property types isn’t necessarily better than another, but they each have a slightly different risk/return profile. So, it is important to understand the differences to determine which one is the best fit for each investor’s individual objectives.
Investing in a Power Center
Given their size and visibility, it should come as no surprise that a typical power center is far too expensive for all but the wealthiest individual real estate investors. As such, the most accessible way to invest in a power center is through a fractional ownership vehicle, like a REIT or Private Equity deal.
REITs and Power Centers
A REIT is a specialized type of real estate investment company that owns, operates, or finances commercial real estate. Many REITs are publicly traded, which means that investors can buy and sell their shares with ease on public stock exchanges. For example, Brixmor is a large publicly traded REIT that owns power centers. At the time of writing, their shares can be purchased for about $25 each and they pay a 3.59% dividend yield. So, for many investors, this is an easy and accessible way to gain exposure to retail power centers.
Private Equity Real Estate & Power Centers
A private equity firm is also a specialized type of investment company, but it invests in the equity of other companies, including those that own real estate. For example, First National Realty Partners is a private equity firm that invests in grocery store anchored retail centers. As the name suggests, shares in private equity deals are not publicly traded. As a result, they can only be bought and sold by accredited real estate investors who meet minimum income and net worth requirements. So, private equity investments are a bit less accessible, but for those who qualify to make one, they can offer a lucrative return.
Summary of Power Centers
A retail power center is a large retail property with 200,000 – 600,000 SF and three or more anchor tenants like a home improvement store and/or discount department store.
According to the most recently available data, there are over 2,200 power centers in the United States and their size, design, and tenant mix are unique to the needs of the market in which they are located.
When compared to other types of retail centers, power centers tend to be larger, with more anchor tenants, who lease the majority of the available space.
For individuals who would like to invest in power centers, the most logical way to do so is through a fractional ownership vehicle like a REIT or Private Equity deal.
Potential retail investors should always complete their own due diligence and choose the option that is the best fit for their individual commercial real estate preferences.
Interested In Learning More?
First National Realty Partners is one of the country’s leading private equity commercial real estate investment firms. With an intentional focus on finding world-class, multi-tenanted assets well below intrinsic value, we seek to create superior long-term, risk-adjusted returns for our investors while creating strong economic assets for the communities we invest in.
If you would like to learn more about our commercial real estate investment opportunities, contact us at (800) 605-4966 or email@example.com for more information.