Strip malls are one of the most common types of commercial real estate in United States. Generally, five factors determine the valuation of the strip mall.
- Income expense ratio: Rental income should cover at least 1.2 to 1.3 times the cost of property maintenance. Expenses include property taxes, insurance, sewage charges, etc.
- Tenancy Mix: Multitenant strip malls mitigate and diversify vacancy risks and are valued more than single tenant property.
- Anchor Tenant: A principle and well-known tenant in a strip mall generates foot traffic and can even boost neighboring store sales, pushing up rentals. Anchor tenant occupancy of around 25 to 30 percent can increase property values by at least 10 to 15 percent.
- Property Taxes: High property taxes not supported by high rental incomes decrease the value of the real estate. Typically, taxes account for about 1 to 3 percent of the overall property value but vary according to state. For example, taxes in Midwestern states hover around 1 percent, but most property owners in Michigan, Florida and New Jersey pay around 3 percent in property tax.
- Location: Like other types of real estate, location is key. Strip malls located near a national highway or a big shopping mall are valued more than those in remote locations.