Swelling Enrollment Turns Schools into Welcome Retail Tenants in the Southeast
Sep 29, 2009 11:49 AM, By Mike Janssen
It’s not just kids who are going back to school this fall. With the unemployment rate spiking, adults have increasingly returned to the classroom to make the most of downtime and to acquire marketable skills, increasing their chances of getting back into the workforce.
That trend is translating into a boon for retail property owners in the Southeast, where schools are becoming unconventional but valuable tenants at shopping centers and mixed-use sites, filling space that might otherwise stay vacant.
The schools are among a variety of nontraditional tenants moving into shopping centers. Real estate observers in Georgia and Florida say many of the expanding schools cater to adults looking to brush up skills or pursue a new career. The institutions trade in vocational and professional disciplines such as cosmetology, massage therapy, nursing, business and real estate.
Whatever the subject, they make themselves welcome at shopping centers by attracting more foot traffic at a time when it’s sorely needed. Students on break shop or grab a bite at neighboring restaurants. And schools often pay rents on a par with retailers. In some cases, they even add a service to a shopping center’s portfolio—such as the barber school where patrons can find a cut-rate clipping.
“It’s a great use of space,” says Kris Cooper, managing director at Jones Lang LaSalle in Atlanta. “It not only brings more people to the property, but the schools are pretty easy as far as buildout. They’re not that hard on an owner.” However, some facilities do have special needs, such as medical schools that require laboratories.
Schools may also pose other challenges for landlords to address. Parking ranks as a key concern. A school may bring large numbers of students to a center for hours on end, potentially overtaxing a parking lot’s capacity. For this reason, a center’s anchors may resist bringing a school to the site.
“You have to be considerate of your co-tenants,” says David Ledbetter, vice president of leasing for R.H. Ledbetter Properties in Rome, Ga. “You have to get their permission. And if it doesn’t work, it’s certainly understandable.”
“In good times, schools are not the greatest tenant in the world, because they eat up your parking,” says Allen Brown, senior vice president of retail with Grubb & Ellis in Atlanta. “But in bad times, they’re really great tenants, because they eat up your parking,” which makes the shopping center look fuller. “They get rent in,” Brown adds. “And they put butts in seats.”
Schools may have to get a zoning variance to set up shop among retailers, though brokers say these are generally not difficult to obtain.
For a school, finding a home at a shopping center can make perfect sense. Though a retail location might at first seem like an unlikely match, adults seeking continuing education don’t need to be seduced by pristine campuses to enroll. And unlike retail outfits, schools rarely depend on signage or visibility from the street to drum up interest—their customers have already sought them out via other venues. This allows schools to move into spaces that may be less desirable to other potential tenants.
Good health
Several landlords and schools in Florida and Georgia attest to favorable deals that have been struck just in the past year. These deals are coming at a time when the both states are experiencing high vacancy rates. For example, neighborhood and community centers in Atlanta have a vacancy rate of 12.9 percent, according to New York City-based research firm Reis Inc. That’s up from 11.1 percent at the end of 2008 and higher than the national rate of 10.0 percent.
One example of the kind of deals getting done involves the Shorter College School of Nursing in Rome, Ga., about 70 miles northwest of Atlanta. Anticipating a launch in fall 2010, the nursing school has moved into Riverbend, a 271,000-square-foot, mixed-use power center in Rome whose retailers include restaurants, Kroger, Pier 1 and Barnes & Noble. Shorter moved into an office six months ago vacated by a medical practice that had downsized. The nursing school now occupies 9,500 square feet in the 20,000-square-foot building, which will host its first-year class of about 30 students. Riverbend is just about two miles from Shorter’s main campus.
By moving into Riverbend, the school was able to avoid shelling out for the construction of a brand new building, says Ledbetter, “a great alternative.” The school expects to occupy the entire building within the next five years.
The layout of Riverbend helped to alleviate any parking difficulties Shorter and Ledbetter could have encountered. Riverbend’s office buildings, which house a relocated doctor’s practice and other medical facilities, lie behind the retailers. “They each have their own separate entrances and their own personalities,” Ledbetter says. The parking field for Shorter is nowhere near the retail parking lots.
Ledbetter and his retailers appreciate the addition of several hundred potential customers coming to the site each day. “It’s really an enhancement for the center if you get the right school,” he says. Furthermore, the nursing school’s proximity to the medical offices allows the doctors to hire nurses from right next door.
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