Strip Mall Maintenance Costs

Homer from Oklahoma wrote:

What is the average cost to maintain a strip mall (each year over a five year period)? What is the typical agreement between the leasee and the leasor ( in terms of: who is responsible for what when something breaks down)? What is the average rent paid for a space in an average sized strip mall?

This is a multi-part question and harder to answer than you may think. Let’s break them down:

Average Rent: The averaged stabilized rent (after free rent and when the tenants have been operating for two eyars or so) for a strip mall depends on several factors, among which are:

  • Geographic location and market
    • Guaran-friggen-tee-ya that California is higher than Oklahoma!
  • Location within the market
    • Translates into sales potential
  • Market conditions
    • We’ve been hit hard here in Northern California, so our rents are generally stable to down from 2007. In Seattle, they’re up

    What matters more than anything else, Homer, is the sales potential. No matter where the retailer is located in the country, the margins are about the same. A sit down restaurant, for example, needs to have a rent factor about 12% of gross sales. So, depending on the average sales in the area, the stabilized rent could be between $18 and $48, with $24 a good medium market figure (but higher in California generally).

Landlord and Tenant Responsibility: This is totally dependent on the lease document. Here are some variants:

  • Absolute Net Lease: Tenant does everything including grounds maintenance. These are typically free standing, single tenant buildings.
  • Triple Net Lease, Shopping Center: This is the norm for most strip malls 30 years old or newer. The tenant pays his proportionate share of real estate taxes, common area insurance, and maintenance. The landlord takes care of the maintenance and bills the tenant back in the triple net or CAM (Common Area Maintenance) charges.
  • Modified Gross Lease: The CAM above is included in the rent, and the tenant pays the increases each year.

Average Annual Maintenance Costs: Impossible to answer without knowing the age, condition, and climate. If there’s snow removal or security, that really adds some cost. In our new strip malls we might spend $6,000 a year for the first five years, and that includes landscaping and general maintenance. In a 20 year old building we might have to start replacing air conditioning at $1,500 per ton, or $6,000 per unit, average. Add painting, roofing, parking lot maintenance and the costs which go back to the CAM can easily be four times that of a new center.

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